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Deferred Acquisition Consideration | 9 Months Ended
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Sep. 30, 2021
Business Combinations [Abstract] |
Deferred Acquisition Consideration | Acquisitions and Dispositions 2021 Acquisition On December 21, 2020, MDC Partners Inc. (“MDC”) and Stagwell Media LP (“Stagwell Media”) announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of Stagwell Media (the “Stagwell Subject Entities”). The Stagwell Subject Entities comprised Stagwell Marketing Group LLC (“Stagwell Marketing or SMG”) and its direct and indirect subsidiaries. On August 2, 2021 (the “Closing Date”), we completed the combination of MDC and the Stagwell Subject Entities and a series of steps and related transactions (such combination and transactions, the “Transactions”). In connection with the Transactions, among other things, (i) MDC completed a series of transactions pursuant to which it emerged as a wholly owned subsidiary of the Company, converted into a Delaware limited liability company and changed its name to Midas OpCo Holdings LLC (“OpCo”); (ii) Stagwell Media contributed the equity interests of Stagwell Marketing and its direct and indirect subsidiaries to OpCo; and (iii) the Company converted into a Delaware corporation, succeeded MDC as the publicly-traded company and changed its name to Stagwell Inc. In respect of the Transactions, the acquired assets and assumed liabilities, together with acquired processes and employees, represent a business as defined in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The Transactions was accounted for as a reverse acquisition using the acquisition method of accounting, pursuant to FASB Topic 805-10, Business Combinations, with MDC treated as the legal acquirer and SMG treated as the accounting acquirer. In identifying SMG as the acquiring entity for accounting purposes, MDC and SMG took into account a number of factors, including the relative voting rights and the corporate governance structure of the Company. SMG is considered the accounting acquirer since Stagwell Media controls the board of directors of the Company following the Transactions and received an indirect ownership interest in the Company’s only operating subsidiary, OpCo, of 69.55% ownership of OpCo’s common units. However, no single factor was the sole determinant in the overall conclusion that Stagwell is the acquirer for accounting purposes; rather all factors were considered in arriving at such conclusion. Under the acquisition method of accounting, the assets and liabilities of MDC, as the accounting acquiree, were recorded at their respective fair value as of the date the Transactions were completed. On August 2, 2021, an aggregate of 179,970,051 shares of the Company’s Class C common stock were issued to Stagwell Media in exchange for $1,800 (the “Stagwell New MDC Contribution”). The Class C common stock does not participate in the earnings of the Company. Additionally, an aggregate of 179,970,051 OpCo common units were issued to Stagwell Media in exchange for the equity interests of the Stagwell Subject Entities (the “Stagwell OpCo Contribution”). The fair value of the purchase consideration is $426,396, consisting of approximately 80,000,000 shares of the Company’s Class A and B common stock and common stock equivalents based on a per share price of approximately $5.42, the closing stock price on the date of the combination. ASC 805 requires the allocation of the purchase price consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination. For this purpose, fair value shall be determined in accordance with the fair value concepts defined in ASC 820, “Fair Value Measurements and Disclosures,” (“ASC 820”). Fair value is defined in ASC 820 as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.” Fair value measurements can be highly subjective and can involve a high degree of estimation. The total purchase price to acquire MDC has been allocated to the assets acquired and assumed liabilities based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The fair value of the acquired assets and assumed liabilities as of the date of acquisition are based on preliminary estimates assisted, in part, by a third-party valuation expert. The estimates are subject to change upon the finalization of appraisals and other valuation analyses, which are expected to be completed no later than one year from the date of acquisition. Although the completion of the valuation activities may result in asset and liability fair values that are different from the preliminary estimates included herein, it is not expected that those differences would alter the understanding of the impact of this transaction on the consolidated financial position and results of operations of the Company. The preliminary purchase price allocation is as follows:
|  | Amount
Cash and cash equivalents |  | $ | 130,155 |
Accounts receivable |  | 419,742 |
Other current assets |  | 44,508 |
Fixed Assets |  | 80,047 |
Right-of-use lease assets - operating leases |  | 293,034 |
Intangible assets |  | 809,900 |
Other assets |  | 16,928 |
Accounts payable |  | (165,443) |
Accruals and other liabilities |  | (308,757) |
Advance billings |  | (211,687) |
Current portion of lease liabilities |  | (55,878) |
Current portion of deferred acquisition consideration |  | (53,054) |
Long-term debt |  | (1,011,690) |
Long-term portion of deferred acquisition consideration |  | (8,056) |
Long-term portion of lease liabilities |  | (292,497) |
Other liabilities |  | (131,897) |
Redeemable noncontrolling interests |  | (30,830) |
Preferred shares |  | (209,980) |
Noncontrolling interests |  | (158,230) |
Net liabilities assumed |  | (843,685) |
Goodwill |  | 1,270,081 |
Purchase price consideration |  | $ | 426,396 |
The excess of purchase consideration over the fair value of the net assets acquired was recorded as goodwill, which is primarily attributed to the assembled workforce of MDC. Goodwill of $1,041,277, $166,658 and $62,146 was assigned to the Integrated Agencies Network, the Media Network and the Communications Network reportable segments, respectively. The majority of the goodwill is non-deductible for income tax purposes. Intangible assets consist of trade names and customer relationships. We amortize purchased intangible assets on a straight-line basis over their respective useful lives. The weighted average life of the total acquired identifiable intangible assets is 13 years. The following table presents the details of identifiable intangible assets acquired.
|  | Estimated Fair Value |  | Estimated Useful Life in Years
Trade Names |  | $ | 98,000 |  |  | 10
Customer Relationships |  | 711,900 |  |  | 6-15
Total Acquired Intangible Assets |  | $ | 809,900 |  |  |
MDC operating results are included in the Condensed Consolidated Statements of Operations from the date of the acquisition through September 30, 2021 with revenue of $241,257 and a nominal net loss. Transaction expenses were approximately $15,000 for the nine months ended September 30, 2021. Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the acquisition as if it occurred as of January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time.
|  | Nine Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2020
Revenue |  | $ | 1,612,399 |  |  | $ | 1,445,813 |
The proforma net loss was nominal for the nine months ended September 30, 2021 and 2020. 2020 Acquisitions On February 14, 2020, the Company acquired Sloane & Company (“Sloane”) from an affiliate of MDC for approximately $24,400 of total consideration. Total consideration included a cash payment of $18,900 made by Stagwell Media (Non-consolidated related party) which was accounted for as a non-cash contribution for the purposes of the Company’s Consolidated Statement of Cash Flows and Statement of Changes in Equity, the acquisition date fair value of the contingent deferred acquisition consideration of $4,800, and $700 of cash paid by the Company. Sloane is an industry-leading strategic communications firm, based out of New York. Sloane will extend SKDK’s current suite of services and allow for the expansion into the capital markets and special situations verticals. On August 14, 2020, the Company acquired Kettle Solutions, LLC (“Kettle”) for approximately $5,400 of total consideration. Total consideration included a cash payment of $4,900, plus an additional $500 due upon the finalization of Kettle’s working capital accounts, as outlined in the purchase agreement. The purchase agreement also offers the previous owners of Kettle an additional $11,900 in deferred consideration, and is dependent on Kettle reaching contractually defined operating goals in 2020, 2021, 2022 and 2023. Kettle is an industry recognized web design and content creation firm that assists its customers in developing and executing marketing campaigns, based out of New York. On October 30, 2020, the Company acquired Truelogic Software, LLC, Ramenu S.A., and Polar Bear Development S.R.L. (collectively referred to as “Truelogic”), for approximately $17,300 of total consideration. Total consideration included a cash payment of $8,900, the acquisition date fair value of the contingent deferred acquisition consideration of $7,900, and an additional $500 due upon the finalization of Truelogic’s working capital accounts, as outlined in the purchase agreement. Truelogic is a software development firm based in Buenos Aires that assists customers in sourcing top South American engineering talent and developing small-scale software projects. Truelogic is included in the Company’s Code and Theory Brand, which is part of its Digital - Marketing reportable segment. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed as of the date of each acquisition (in thousands):
|  | 2020
|  | Sloane |  | Kettle |  | Truelogic |  | Total
Cash, cash equivalents and restricted cash |  | $ | — |  |  | $ | 49 |  |  | $ | 90 |  |  | $ | 139 |
Accounts receivable and other current assets |  | 2,768 |  |  | 2,732 |  |  | 2,958 |  |  | 8,458 |
Other noncurrent assets |  | — |  |  | 172 |  |  | 10 |  |  | 182 |
Intangible assets |  | 5,900 |  |  | 1,930 |  |  | 9,500 |  |  | 17,330 |
Property and equipment |  | 72 |  |  | 58 |  |  | 50 |  |  | 180 |
Right-of-use assets – operating leases |  | — |  |  | 533 |  |  | 201 |  |  | 734 |
Accounts payable and other current liabilities |  | (469) |  |  | (552) |  |  | (1,063) |  |  | (2,084) |
Advanced billings |  | (130) |  |  | (310) |  |  | (429) |  |  | (869) |
Operating lease liabilities |  | — |  |  | (533) |  |  | (201) |  |  | (734) |
Goodwill |  | 16,275 |  |  | 1,323 |  |  | 6,184 |  |  | 23,782 |
Total net assets acquired |  | $ | 24,416 |  |  | $ | 5,402 |  |  | $ | 17,300 |  |  | $ | 47,118 |
Goodwill recognized on the Sloane, Kettle and Truelogic acquisitions is fully-deductible for income tax purposes. The following table reports the fair value of intangible assets acquired, including the corresponding weighted average amortization periods, as of the date of each acquisition (in thousands, except years):
|  |  |  | 2020
|  | Weighted Average Amortization Period |  | Sloane |  | Kettle |  | Truelogic |  | Total
Customer relationships |  | 10 years |  | $ | 4,600 |  |  | $ | 1,600 |  |  | $ | 9,100 |  |  | $ | 15,300 |
Tradenames and trademarks |  | 11 years |  | 1,300 |  |  | 330 |  |  | 400 |  |  | 2,030 |
Total |  |  |  | $ | 5,900 |  |  | $ | 1,930 |  |  | $ | 9,500 |  |  | $ | 17,330 |
The following table summarizes the total revenue and net income included in the Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) from the date of each acquisition (in thousands):
|  | Nine Months Ended September 30, 2020
Revenue |  | $ | 10,794 |
Net Income |  | $ | 1,199 |
Pro Forma Financial Information (unaudited) The unaudited pro forma information for the periods set forth below gives effect to the 2020 acquisitions as if they had occurred as of January 1, 2020. The pro forma information is presented for informational purposes only and is not necessarily indicative of the results of operations that actually would have been achieved had the acquisitions been consummated as of that time (in thousands):
|  | Nine Months Ended September 30, 2020
Revenue |  | $ | 587,343 |
Net Income |  | $ | 39,801 |
2021 Disposition On September 15, 2021, the Company sold Reputation Defender to a strategic buyer for approximately $40,000 resulting in a gain of approximately $43,000. The gain is recognized within the All Other category in Gain on sale of business and other, net within the Unaudited Condensed Consolidated Statements of Operations. Deferred Acquisition Consideration Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. Contingent deferred acquisition consideration is recorded at the acquisition date fair value and adjusted at each reporting period through operating income. The Company accounts for certain retention payments through operating income as compensation expense over the required retention period. The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the balance sheets as of September 30, 2021 and December 31, 2020:
| September 30, |  | December 31,
| 2021 |  | 2020
Beginning Balance of Contingent Payments | $ | 17,847 |  |  | $ | 65,792 |
Payments | (12,286) |  |  | (66,235) |
Redemption value adjustments (1) | 9,535 |  |  | 2,520 |
Additions (2) | 61,110 |  |  | 15,717 |
Other | (501) |  |  | 53 |
Ending balance of contingent payments | $ | 75,705 |  |  | $ | 17,847 |
(1) Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments. Redemption value adjustments are recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations. (2) Additions in 2021 represent deferred acquisition consideration acquired in connection with the acquisition of MDC.

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