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Note 4 - Acquisitions

12 Months Ended

Dec. 31, 2023

Notes to Financial Statements

Business Combination Disclosure [Text Block]

4.	Acquisitions

2023 acquisitions:

The Company completed twelve acquisitions during the year, three in the FirstService Residential segment and nine in the FirstService Brands segment. In the FirstService Residential segment, the Company acquired three property management firms operating in New York City, Toronto, Canada, and San Ramon, California, respectively.

Within the FirstService Brands segment, the Company acquired three Paul Davis franchises, headquartered in Houston, Texas, Denver, Colorado, and Boise, Idaho, respectively. The Company also acquired a fire protection company, located in Houston, Texas, a California Closets franchise operating in Reno, Nevada, two independent restoration companies located in Nashville, Tennessee and Cincinnati, Ohio, respectively, as well as a property services business in Orange County, California. On December 18^th, the Company announced the acquisition of Roofing Corp of America, a commercial roofing company headquartered in Atlanta, Georgia and operating in 11 U.S. states spanning the Sun Belt, Mid-Atlantic, Midwest and West regions.

Details of these acquisitions are as follows:

Roofing Corp

All other

of America

acquisitions

Total

Accounts receivable

$

83,943

$

27,919

$

111,862

Other current assets

26,362

5,089

31,451

Non-current assets

22,871

6,581

29,452

Accounts payable

(30,531

)

(13,826

)

(44,357

)

Accrued liabilities

(14,171

)

(4,592

)

(18,763

)

Other current liabilities

(13,364

)

(5,507

)

(18,871

)

Non-current liabilities

(5,491

)

(3,378

)

(8,869

)

Deferred tax liabilities

(5,062

)

(14,243

)

(19,305

)

Redeemable non-controlling interest

(46,255

)

(17,604

)

(63,859

)

$

18,302

$

(19,561

)

$

(1,259

)

Cash consideration

$

445,160

$

146,265

⁽¹⁾

$

591,425

Less: cash acquired

(19,883

)

(9,735

)

(29,618

)

Acquisition date fair value of contingent consideration

21,902

10,669

32,571

Total purchase consideration

$

447,179

$

147,199

$

594,378

Acquired intangible assets

$

234,770

⁽²⁾

$

71,121

$

305,891

Goodwill

$

194,107

$

95,639

$

289,746

(1) Included in the other amount is $14,625 paid in escrow just prior to December 31, 2022.

(2) Intangible assets for Roofing Corp include $212,890 of customer relationships and $21,880 of trademarks.

“Acquisition-related items” included both transaction costs and contingent acquisition consideration fair value adjustments. Acquisition-related transaction costs for the year ended December 31, 2023 totaled $5,151 (2022 - $5,114). Also included in acquisition-related items was an increase of $16,366 related to contingent acquisition consideration fair value adjustments (2022 – reversal of $594).

The purchase price allocations for certain transactions completed in the last twelve months, including Roofing Corp of America, are not yet complete, pending final determination of the fair value of assets acquired, the corresponding deferred tax liabilities, and final working capital adjustments. The acquisitions referred to above were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of earnings do not include any revenues or expenses related to these acquisitions prior to their respective closing dates. There have been no material changes to the estimated purchase price allocations determined at the time of acquisition during the year ended December 31, 2023.

The amount of revenues and earnings contributed from the date of acquisition and included in the Company’s consolidated results for the year ended December 31, 2023, and the supplemental pro forma revenues and earnings of the combined entity had the acquisition date been January 1, 2022, are as follows:

		Revenues				Net earnings

Actual from acquired entities for 2023		$	111,915			$	6,820
Supplemental pro forma for 2023 (unaudited)			4,794,360				182,933
Supplemental pro forma for 2022 (unaudited)			4,450,194				198,381

Supplemental pro forma results were adjusted for non-recurring items.

2022 acquisitions:

The Company completed seven acquisitions in 2022, one in the FirstService Residential segment and six in the FirstService Brands segment. In the FirstService Residential segment, the Company acquired a regional firm operating in New York City. In the FirstService Brands segment, the Company acquired three independent restoration companies operating in Ontario, Alabama, and Louisiana. The Company also acquired two Paul Davis operations located in Nebraska and Utah, as well as a California Closets franchise located in Oregon.

Details of these acquisitions are as follows:

		Aggregate
		Acquisitions

Accounts receivable		$	11,478
Other current assets			11,764
Non-current assets			7,848
Accounts payable			(3,877	)
Accrued liabilities			(3,305	)
Other current liabilities			(7,114	)
Non-current liabilities			(3,804	)
Deferred tax liabilities			(2,008	)
Redeemable non-controlling interest			(18,262	)
		$	(7,280	)

Cash consideration, net of cash acquired of $8,318		$	51,994
Acquisition date fair value of contingent consideration			8,933
Total purchase consideration		$	60,927

Acquired intangible assets		$	28,201
Goodwill		$	40,006

In all years presented, the fair values of non-controlling interests for all acquisitions were determined using an income approach with reference to a discounted cash flow model using the same assumptions implied in determining the purchase consideration.

The purchase price allocations of all acquisitions resulted in the recognition of goodwill. The primary factors contributing to goodwill are assembled workforces, synergies with existing operations and future growth prospects. For certain acquisitions completed during the year ended December 31, 2023, goodwill in the amount of $160,831 is deductible for income tax purposes (2022 - $15,797).

The determination of fair values of assets acquired and liabilities assumed in business combinations required the use of estimates and judgement by management, particularly in determining fair values of intangible assets acquired. Intangible assets acquired at fair value on the date of acquisition are recorded using the income approach on an individual asset basis. The assumptions used in estimating the fair values of intangible assets include future EBITDA margins, revenue growth rates, revenue attributable to returning customers, expected attrition rates of acquired customer relationships and the discount rates.

The Company typically structures its business acquisitions to include contingent consideration. Vendors, at the time of acquisition, are entitled to receive a contingent consideration payment if the acquired businesses achieve specified earnings levels during the one- to two-year periods following the dates of acquisition. The ultimate amount of payment is determined based on a formula, the key inputs to which are (i) a contractually agreed maximum payment; (ii) a contractually specified earnings level and (iii) the actual earnings for the contingency period. If the acquired business does not achieve the specified earnings level, the maximum payment is reduced for any shortfall, potentially to nil.

The fair value of the contingent consideration liability recorded on the consolidated balance sheet as at December 31, 2023 was $63,478 (see note 18). The estimated range of outcomes (undiscounted) for these contingent consideration arrangements is determined based on the formula price and the likelihood of achieving specified earnings levels over the contingency period, and ranges from $54,721 to a maximum of $64,378. These contingencies will expire during the period extending to November 2025. During the year ended December 31, 2023, $20,136 was paid with reference to such contingent consideration (2022 - $6,806).