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Deferred Acquisition Consideration | 9 Months Ended
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Sep. 30, 2022
Business Combinations [Abstract] |
Deferred Acquisition Consideration | 3. Acquisitions 2022 Acquisitions Acquisition of Brand New Galaxy On April 19, 2022, the Company acquired Brand New Galaxy (“BNG”), for approximately $20,695 of cash consideration, as well as contingent consideration up to a maximum value of $50,000. The contingent consideration is due upon meeting certain future earnings targets through 2024, with approximately 67% payable in cash and 33% payable in Class A Common Stock. The consideration has been allocated to the assets acquired and assumed liabilities of BNG based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows:
|  | Amount
Cash and cash equivalents |  | $ | 2,771 |
Accounts receivable |  | 7,638 |
Other current assets |  | 1,634 |
Fixed assets |  | 2,338 |
Intangible assets |  | 12,410 |
Other assets |  | 1,416 |
Accounts payable |  | (6,855) |
Accruals and other liabilities |  | (4,896) |
Advance billings |  | (1,095) |
Other liabilities |  | (3,448) |
Net assets assumed |  | 11,913 |
Goodwill |  | 25,552 |
Purchase price consideration |  | $ | 37,465 |
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 BNG. Goodwill of $25,552 was assigned to the Brand Performance Network reportable segment. 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 ten years. The following table presents the details of identifiable intangible assets acquired:
|  | Estimated Fair Value |  | Estimated Useful Life in Years
Trade Names |  | $ | 5,930 |  |  | 10
Customer Relationships |  | 5,390 |  |  | 11
Other |  | 1,090 |  |  | 7
Total Acquired Intangible Assets |  | $ | 12,410 |  |  |
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, 2021. 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.
|  |  |  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  |  |  | 2021 |  | 2022 |  | 2021
Revenue |  |  |  | $ | 473,539 |  |  | $ | 1,989,833 |  |  | $ | 878,610 |
Net Income |  |  |  | 7,031 |  |  | 92,670 |  |  | 30,495 |
Revenue attributable to BNG, included within the three and nine months ended September 30, 2022 unaudited condensed consolidated statement of operations is $5,580 and $11,215, respectively and operating loss was $2,500 and $2,620, respectively. Acquisition of TMA Direct, Inc. On May 31, 2022, the Company acquired approximately 87% of TMA Direct, Inc. (“TMA Direct”) for approximately $17,247 of cash consideration and approximately $457 of deferred acquisition payments. The Company was also granted an option to purchase the remaining 13% minority interest in TMA Direct for up to approximately $13,330. The consideration has been allocated to the assets acquired and assumed liabilities of TMA Direct based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows:
|  | Amount
Accounts receivable |  | $ | 582 |
Other current assets |  | 669 |
Intangible assets |  | 13,200 |
Accounts payable |  | (379) |
Other liabilities |  | (270) |
Noncontrolling interests |  | (2,667) |
Net assets assumed |  | 11,135 |
Goodwill |  | 6,569 |
Purchase price consideration |  | $ | 17,704 |
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 TMA Direct. Goodwill of $6,569 was assigned to the Communications Network reportable segment. The majority of the goodwill is 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 ten years. The following table presents the details of identifiable intangible assets acquired:
|  | Estimated Fair Value |  | Estimated Useful Life in Years
Customer Relationships |  | $ | 11,400 |  |  | 10
Trade names |  | 1,800 |  |  | 10
Total Acquired Intangible Assets |  | $ | 13,200 |  |  |
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, 2021. 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.
|  | Three Months Ended September 30, |  | Nine Months Ended September 30,
|  | 2021 |  | 2022 |  | 2021
Revenue |  | $ | 468,862 |  |  | $ | 1,983,437 |  |  | $ | 867,533 |
Net Income |  | 8,462 |  |  | 94,768 |  |  | 34,491 |
Revenue attributable to TMA Direct, included within the three and nine months ended September 30, 2022 unaudited condensed consolidated statement of operations is $3,774 and $5,026, respectively, and operating income was $1,369 and $1,626, respectively. Other Acquisitions On July 12, 2022, the Company acquired PEP Group Holdings B.V. (“PEP Group”), an omnichannel content creation and adaption production company for approximately $521, subject to post-closing adjustments, as well as contingent consideration up to a maximum value of $2,679. The contingent consideration is based on meeting certain future earnings targets through 2025. On July 15, 2022, the Company acquired Apollo Program II Inc. (“Apollo”), a real-time artificial intelligence-powered software-as-a-service platform, for approximately $2,300, subject to post-closing adjustments, as well as fixed deferred payments of $1,000 and $1,500 on or prior to July 1, 2023 and July 1, 2024, respectively. The estimates of fair value for the aforementioned acquisitions are subject to change and could be significant. The Company expects to complete the allocation of purchase price as soon as practicable, but no later than one year after the acquisition date. 2021 Acquisitions Acquisition of MDC On December 21, 2020, MDC and Stagwell Media announced that they had entered into the Transaction Agreement, providing for the combination of MDC with the operating businesses and subsidiaries of the Stagwell Subject Entities. The Stagwell Subject Entities comprised Stagwell Marketing 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, and subsequently to Stagwell Global 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 FASB’s Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The Transactions were accounted for as a reverse acquisition using the acquisition method of accounting, pursuant to ASC 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 shares of the Company’s Class C Common Stock were issued to Stagwell Media in exchange for $1.80 (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 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 $429,062, consisting of approximately 80,000 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 purchase price valuation was completed during the third quarter of 2022. The purchase price allocation is as follows:
|  | Amount
Cash and cash equivalents |  | $ | 130,197 |
Accounts receivable |  | 398,736 |
Other current assets |  | 41,291 |
Fixed assets |  | 81,343 |
Right-of-use lease assets - operating leases |  | 252,739 |
Intangible assets |  | 810,900 |
Other assets |  | 18,282 |
Accounts payable |  | (139,590) |
Accruals and other liabilities |  | (307,439) |
Advance billings |  | (211,212) |
Current portion of lease liabilities |  | (54,009) |
Current portion of deferred acquisition consideration |  | (53,054) |
Long-term debt |  | (901,736) |
Revolving credit facility |  | (109,954) |
Long-term portion of deferred acquisition consideration |  | (8,056) |
Long-term portion of lease liabilities |  | (283,637) |
Other liabilities |  | (139,026) |
Redeemable noncontrolling interests |  | (25,990) |
Preferred shares |  | (209,980) |
Noncontrolling interests |  | (151,090) |
Net liabilities assumed |  | (861,285) |
Goodwill |  | 1,290,347 |
Purchase price consideration |  | $ | 429,062 |
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 $932,582, $285,396 and $72,369 was assigned to the Integrated Agencies Network, the Brand Performance Network and the Communications Network reportable segments, respectively. The majority of the goodwill is non-deductible for income tax purposes. Goodwill has been reduced from the reported amount as of June 30, 2022 of $1,298,370 primarily to reflect the finalization of the assessment of certain tax positions and the related deferred taxes, as well as the finalization of the valuation of certain assets and liabilities in the Brand Performance Network. There has been no change that impacts the Consolidated Statement of Operations. 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 thirteen 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 |  | 712,900 |  |  | 6-15
Total Acquired Intangible Assets |  | $ | 810,900 |  |  |
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, 2021. 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.
|  | Three Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2021
Revenue |  | $ | 568,424 |  |  | $ | 1,612,399 |
The pro forma net loss was nominal for the three and nine months ended September 30, 2021. Revenue attributable to MDC, included within the three and nine months ended September 30, 2021 unaudited condensed consolidated statement of operations is $342,539 and $995,729, respectively and operating income was $17,506 and $77,817, respectively. Acquisition of GoodStuff Holdings Limited On December 31, 2021, the Company acquired GoodStuff Holdings Limited (“Goodstuff”) for approximately £21,000 (approximately $28,188) of cash consideration as well as contingent consideration up to a maximum of £22,000. The cash consideration included an initial payment of £8,000, an excess working capital payment of approximately £9,000 and approximately £4,000 of deferred payments. The contingent consideration is tied to employees’ service and will be recognized as deferred acquisition consideration expense through 2026. Therefore, only the cash consideration has been allocated to the assets acquired and assumed liabilities of Goodstuff based upon preliminary estimated fair values, with any excess purchase price allocated to goodwill. The preliminary purchase price allocation is as follows:
|  | Amount
Cash and cash equivalents |  | $ | 30,985 |
Accounts receivable |  | 28,685 |
Other current assets |  | 3,207 |
Fixed assets |  | 237 |
Right-of-use lease assets - operating leases |  | 2,060 |
Intangible assets |  | 14,974 |
Other assets |  | 55 |
Accounts payable |  | (6,344) |
Accruals and other liabilities |  | (27,353) |
Advance billings |  | (15,956) |
Current portion of lease liabilities |  | (857) |
Income taxes payable |  | (967) |
Long-term portion of lease liabilities |  | (3,744) |
Other liabilities |  | (1,204) |
Net assets assumed |  | 23,778 |
Goodwill |  | 4,410 |
Purchase price consideration |  | $ | 28,188 |
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 Goodstuff. Goodwill of $4,410 was assigned to the Brand Performance Network reportable segment. 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 ten years. The following table presents the details of identifiable intangible assets acquired:
|  | Estimated Fair Value |  | Estimated Useful Life in Years
Trade Names |  | $ | 1,349 |  |  | 15
Customer Relationships |  | 13,625 |  |  | 10
Total Acquired Intangible Assets |  | $ | 14,974 |  |  |
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, 2021. 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.
|  | Three Months Ended September 30, 2021 |  | Nine Months Ended September 30, 2021
Revenue |  | $ | 471,406 |  |  | $ | 872,192 |
Net Income |  | 8,357 |  |  | 33,894 |
2022 Purchases of Noncontrolling Interests On April 1, 2022, the Company acquired the remaining interest in Hello Design, LLC (“Hello Design”) that it did not already own for an aggregate purchase price of $4,600, comprised of a closing cash payment of $3,600 and a contingent deferred acquisition payment of $1,000. The contingent deferred payment will be based on the financial results of the underlying business through the end of 2022 with the payment due in 2023. 2021 Purchases of Noncontrolling Interests On October 1, 2021, the Company entered into an agreement to purchase the approximate 27% remaining interest of Targeted Victory it did not already own, stipulating the purchase of 13.3% on October 1, 2021 and the remaining 13.3% on July 31, 2023, with the option for the seller to delay the second purchase until July 31, 2025. The purchase price of $73,898 was comprised of a contingent deferred acquisition payment and redeemable noncontrolling interest with estimated present values at the acquisition date of $46,618 and $27,280, respectively. The contingent deferred payment and redeemable noncontrolling interest were based on the financial results of the underlying business through 2025. In addition, at the option of the Company, up to 50% of the total purchase price can be paid in shares of Class A Common Stock and in no event may the purchase price exceed $135,000. On December 1, 2021, the Company acquired the approximate 27% remaining interest of Concentric it did not already own for an aggregate purchase price of $8,058, comprised of a closing cash payment of $1,581 and contingent deferred acquisition payments with an estimated present value at the acquisition date of $6,477. The contingent deferred payments were based on the financial results of the underlying business through 2022 with final payment due in 2023. On December 31, 2021, the Company acquired the approximate 49% remaining interest of Instrument it did not already own for an aggregate purchase price of $157,072, comprised of a closing payment of $37,500 in cash and $37,500 in shares of Class A Common Stock and deferred acquisition payments with an estimated present value at the acquisition date of $82,072. The deferred payments are not contingent and will be paid in 2023 and 2024. 6. Deferred Acquisition Consideration Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and 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 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, 2022 and December 31, 2021:
| September 30, 2022 |  | December 31, 2021
Beginning balance of contingent payments | $ | 222,369 |  |  | $ | 17,847 |
Payments | (71,865) |  |  | (12,431) |
Adjustment to deferred acquisition consideration (1) | (13,793) |  |  | 18,721 |
Additions (2) | 24,594 |  |  | 198,937 |
Currency Translation Adjustment | (1,576) |  |  | — |
Other | (140) |  |  | (705) |
Ending balance of contingent payments (3) | $ | 159,589 |  |  | $ | 222,369 |
(1) Adjustment to deferred acquisition consideration contains fair value changes from the Company’s initial estimates of deferred acquisition payments. Adjustment to deferred acquisition consideration is recorded within Office and general expenses on the Unaudited Condensed Consolidated Statements of Operations. (2) In 2021, approximately $61,000 of additions represent deferred acquisition consideration acquired in connection with the acquisition of MDC. Approximately $136,000 of additions represent deferred acquisition consideration acquired in connection with the purchases of noncontrolling interests. See Note 3 of the Notes included herein for additional information related to the purchases of Concentric, Targeted Victory, and Instrument. In 2022, approximately 22,014 of additions represent deferred acquisition consideration acquired in connection with the acquisitions of BNG, Apollo, and PEP Group. See Note 3 of the Notes included herein for additional information related to these purchases. (3) As of September 30, 2022, approximately, $42,356 of the deferred acquisition consideration is expected to be settled in the Company’s in Class A Common Stock.

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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 https://asc.fasb.org/topic&trid=2303972 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -SubTopic 20 -Section 50 -Paragraph 5 -Subparagraph (b) -URI https://asc.fasb.org/extlink&oid=128092470&loc=d3e4946-128472 + Details
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