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Acquisition of Torrens University and Associated Assets in Australia and New Zealand | 3 Months Ended
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Mar. 31, 2021
Business Combinations [Abstract] |
Acquisition of Torrens University and Associated Assets in Australia and New Zealand | Acquisition of Torrens University and Associated Assets in Australia and New ZealandOn November 3, 2020, the Company completed its acquisition of Torrens University and associated assets in Australia and New Zealand pursuant to the sale and purchase agreement dated July 29, 2020 (the "Purchase Agreement"). The acquired operations include Torrens University Australia, Think Education, and Media Design School, which together provide diversified student curricula to over 19,000 students across five industry verticals, including business, hospitality, health, education, creative technology and design. Pursuant to the Purchase Agreement, the aggregate consideration paid was approximately $658.4 million in cash, which reflected the original agreed upon purchase price of $642.7 million, plus a $15.7 million adjustment reflecting an estimated $11.0 million of net cash at close, and an estimated $4.7 million related to higher net working capital. These estimated adjustments are subject to a final true-up of net cash and net working capital, based on the closing accounts to be finalized by both parties. The Company applied the acquisition method of accounting to ANZ, whereby the excess of the acquisition date fair value of consideration transferred over the fair value of identifiable net assets was allocated to goodwill. Goodwill reflects workforce and synergies expected from cost savings, operations, and revenue enhancements of the combined company that are expected to result from the acquisition. The goodwill recorded as part of the acquisition was allocated to the Australia/New Zealand reportable segment in the amount of $546.3 million, and is not deductible for tax purposes. Through March 31, 2021, the Company has incurred $8.1 million of acquisition-related costs which have been recognized in Merger and integration costs in the unaudited condensed consolidated statements of income. These costs were primarily attributable to legal, financial, and accounting support services incurred by the Company in connection with the acquisition. The preliminary opening balance sheet is subject to adjustment based on final assessment of the fair values of certain acquired assets and liabilities, primarily intangible assets and income taxes. As the Company finalizes its assessment of the fair value of assets acquired and liabilities assumed, additional purchase price adjustments may be recorded during the measurement period. The Company reflects measurement period adjustments in the period in which the adjustments occur. During the first quarter of 2021, the Company recorded a measurement period adjustment that reduced Property and equipment, net by $0.3 million and increased goodwill by $0.3 million. The preliminary fair value of assets acquired and liabilities assumed as well as a reconciliation to consideration transferred is presented in the table below (in thousands):
Cash and cash equivalents | $ | 16,082 |
Tuition receivable | 24,447 |
Other current assets | 17,713 |
Property and equipment, net | 41,508 |
Right-of-use lease assets | 44,229 |
Intangible assets | 103,161 |
Goodwill | 546,315 |
Other assets | 2,799 |
Total assets acquired | 796,254 |
Accounts payable and accrued expenses | (33,876) |
Income taxes payable | (229) |
Contract liabilities | (33,309) |
Lease liabilities | (9,685) |
Deferred income taxes | (18,712) |
Lease liabilities, non-current | (34,544) |
Other long-term liabilities | (7,520) |
Total liabilities assumed | (137,875) |
Total consideration | $ | 658,379 |
The table below presents a summary of intangible assets acquired (in thousands) and the weighted average useful lives of these assets:
| Fair Value |  | Weighted Average Useful Life in Years
Trade names | $ | 68,774 |  |  | Indefinite
Student relationships | 34,387 |  |  | 3
| $ | 103,161 |  |  |
The Company determined the fair value of assets acquired and liabilities assumed based on assumptions that reasonable market participants would use while employing the concept of highest and best use of the assets and liabilities. The Company utilized the following assumptions, some of which include significant unobservable inputs which would qualify the valuations as Level 3 measurements, and valuation methodologies to determine fair value: •Intangible assets ▪Trade names - to determine the fair value of the trade names, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate. Key assumptions used in the valuation included revenue growth rates ranging from 2.5% to 6.3% per year, a royalty rate of 2.5% and a discount rate of 11%. ▪Student relationships - to determine the fair value of the student relationships, the Company used the excess earnings method, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, earnings before interest and taxes margins, annual attrition rate, and discount rate. Key assumptions used in the valuation included an annual attrition rate of 60% and a discount rate of 11%. •Property and equipment - Included in property and equipment is course content of $10.0 million. To determine the fair value of course content, the Company used the relief from royalty approach, which involved the use of estimates and assumptions with respect to the timing and amounts of future cash flows, revenue growth rates, royalty rate, and discount rate. Key assumptions used in the valuation included revenue growth rates ranging from 5.6% to 6.2%, a royalty rate of 3% and a discount rate of 11%. The course content will be amortized over 3 years. All other property and equipment was valued at estimated cost. •Contract liabilities - The Company estimated the fair value of contract liabilities using the cost build-up method, which represents the cost to deliver the services plus a normal profit margin. Based on this method, fair value of contract liabilities were estimated to be 70% of carrying value as of the acquisition date. •Other current and noncurrent assets and liabilities - The carrying value of all other assets and liabilities approximated fair value at the time of acquisition.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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