Business Combinations (Notes)

6 Months Ended

Jun. 30, 2020

Business Combinations

The Company completed nine business combinations for an aggregate purchase price of $309.4 million during the six months ended June 30, 2020. In accordance with ASC Topic 805, Business Combinations (“Topic 805”), total consideration was first allocated to the fair value of assets acquired, including liabilities assumed, with the excess being recorded as goodwill. For financial statement purposes, goodwill is not amortized but rather is evaluated for impairment at least annually or more frequently if an event or change in circumstances occurs that indicates goodwill may be impaired. Goodwill is deductible for tax purposes and will be amortized over a period of 15 years.

The recorded purchase price for certain of the foregoing business combinations includes an estimation of the fair value of contingent consideration obligations associated with potential earnout provisions, which are generally based on recurring commissions and fees revenue. The contingent earnout consideration amounts identified in the tables below are measured at fair value within Level 3 of the fair value hierarchy as discussed further in Note 13. Any subsequent changes in the fair value of contingent earnout liabilities will be recorded in the condensed consolidated statements of comprehensive income (loss) when incurred.

The recorded purchase price for certain business combinations also includes an estimation of the fair value of noncontrolling interests, which are calculated based on a valuation of the entity with the relevant percentage applied.

The Company completed the following nine business combinations during the six months ended June 30, 2020:


•	Lanier, a Middle Market Partner effective January 1, 2020, was made to expand the Company’s Middle Market presence in the healthcare, higher education, construction, property and non-profit businesses throughout Florida and other states.


•	Highland, a Specialty Partner effective January 1, 2020, was made to expand the Company’s Specialty presence in the healthcare and cyber insurance businesses and to add capabilities within the real estate business.


•	AgencyRM, a Medicare Partner effective February 1, 2020, was made to expand the Company’s Medicare business presence in Texas.


•	VibrantUSA, a Medicare Partner effective February 1, 2020, was made to expand the Company’s Medicare business presence in Washington.


•	IRP, a Middle Market Partner effective April 1, 2020, was made to expand the Company’s capabilities within the energy and infrastructure business.


•	Southern Protective Group, a Middle Market Partner effective May 1, 2020, was made to expand the Company's risk consulting capabilities in the medical malpractice market.


•	Pendulum, a Specialty Partner effective May 1, 2020, was made to expand the Company's specialty risk consulting capabilities in the long-term care and senior living markets.


•	Rosenthal, a Middle Market Partner effective June 1, 2020, was made to expand the Company’s capabilities within the habitational real estate industry.


•	TBA/RBA, a Middle Market Partner effective June 1, 2020, was made to expand the Company’s employee benefits business in Tennessee and across the Southeastern U.S.

The operating results of these business combinations have been included in the condensed consolidated statements of comprehensive income (loss) since their respective acquisition dates. The Company recognized total revenues and net income from these business combinations of $17.7 million and $2.2 million, respectively, for the six months ended June 30, 2020.

Acquisition-related costs incurred in connection with these business combinations are recorded in other operating expenses in the condensed consolidated statements of comprehensive income (loss). The Company incurred acquisition-related costs from these business combinations of $1.4 million for the six months ended June 30, 2020.

The table below provides a summary of the total consideration and the estimated purchase price allocations made for each of the business acquisitions that became effective during the six months ended June 30, 2020. The "All Others" column includes amounts for the AgencyRM, VibrantUSA, Southern Protective Group and Pendulum business combinations.



(in thousands)	Lanier			Highland			IRP			Rosenthal			TBA/RBA			All Others			Totals
Cash consideration paid	$	24,450		$	6,603		$	26,223		$	75,936		$	76,272		$	22,253		$	231,737
Fair value of contingent earnout consideration	1,628			788			5,521			7,051			7,000			3,200			25,188
Fair value of equity interest	6,119			4,500			7,535			10,147			21,427			2,402			52,130
Deferred payment	—			—			—			—			300			—			300
Total consideration	$	32,197		$	11,891		$	39,279		$	93,134		$	104,999		$	27,855		$	309,355

Cash	$	2,413		$	1,542		$	1,694		$	954		$	—		$	1,022		$	7,625
Premiums, commissions and fees receivable	2,494			5,977			3,229			4,734			8,731			1,598			26,763
Property and equipment	294			—			123			—			—			27			444
Other assets	168			13			22			11			—			16			230
Intangible assets																			—
Purchased customer accounts	6,308			—			8,262			33,670			53,900			4,993			107,133
Distributor relationships	—			6,500			—			—			—			8,100			14,600
Carrier relationships	—			659			—			—			—			—			659
Software	—			—			—			—			—			565			565
Trade names	—			214			—			939			179			57			1,389
Goodwill	23,739			4,228			30,250			56,253			44,264			12,322			171,056
Total assets acquired	35,416			19,133			43,580			96,561			107,074			28,700			330,464
Premiums and producer commissions payable	(2,954		)	(6,374		)	(4,301		)	(3,427		)	(2,075		)	(584		)	(19,715		)
Accrued expenses and other current liabilities	(265		)	(868		)	—			—			—			(261		)	(1,394		)
Total liabilities acquired	(3,219		)	(7,242		)	(4,301		)	(3,427		)	(2,075		)	(845		)	(21,109		)
Net assets acquired	$	32,197		$	11,891		$	39,279		$	93,134		$	104,999		$	27,855		$	309,355

Maximum potential contingent earnout consideration ⁽¹⁾	$	11,000		$	2,450		$	44,399		$	30,843		$	30,147		$	8,689		$	127,528

__________


(1)	IRP has an uncapped earnout. The maximum potential earnout consideration represented has been calculated assuming 50% compound annual revenue growth for three years.

Due to the complexity of valuing the consideration paid and the purchase price allocation and the timing of these activities, certain amounts included in the condensed consolidated financial statements may be provisional and subject to additional adjustments within the measurement period as permitted by Topic 805. Any measurement period adjustments related to prior period business combinations are reflected as current period adjustments in accordance with Topic 805. The Company did not have any measurement period adjustments during the six months ended June 30, 2020.

The factors contributing to the recognition of the amount of goodwill are based on expanding business presence into new geographic locations and service markets, strategic benefits that are expected to be realized from acquiring the Partners’ assembled workforce in addition to other synergies gained from integrating the Partners’ operations into our consolidated structure.

The intangible assets acquired in connection with business combinations during the six months ended June 30, 2020 have the following estimated weighted-average lives:



	Weighted-Average Life
Purchased customer accounts	19.1 years
Distributor relationships	20.0 years
Carrier relationships	0.8 years
Software	2.0 years
Trade names	4.3 years

Future annual estimated amortization expense over the next five years for intangible assets acquired in connection with business combinations during the six months ended June 30, 2020 is as follows:



(in thousands)	Amount
For the remainder of 2020	$	4,780
2021	8,775
2022	8,490
2023	8,313
2024	8,096

The following unaudited pro forma consolidated results of operations are provided for illustrative purposes only and have been presented as if the acquisitions of Lanier, Highland, AgencyRM, VibrantUSA, IRP, Southern Protective Group, Pendulum, Rosenthal and TBA/RBA occurred on January 1, 2019. This unaudited pro forma information should not be relied upon as being indicative of the historical results that would have been obtained if the acquisitions had occurred on that date, nor of the results that may be obtained in the future.



	For the Three Months Ended June 30,						For the Six Months Ended June 30,
(in thousands, except per share data)	2020			2019			2020		2019
Pro forma results:
Revenues	$	55,821		$	50,809		$	133,905	$	105,645
Net income (loss)	(8,178		)	(4,115		)	6,144		8,656
Net income (loss) attributable to BRP Group, Inc.	(2,845		)				2,030

Basic earnings (loss) per share	$	(0.14	)				$	0.10
Diluted earnings (loss) per share	$	(0.14	)				$	0.10
Weighted-average shares of Class A common stock outstanding - basic	20,426						19,983
Weighted-average shares of Class A common stock outstanding - diluted	20,426						20,344