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Acquisitions and Divestitures (Notes) | 3 Months Ended
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Mar. 31, 2022
Business Combinations [Abstract] |
Acquisitions and divestitures | Acquisitions and Divestitures On February 17, 2021, we completed the acquisition of Acima Holdings, LLC (“Acima Holdings”). Acima Holdings is a leading platform offering customers virtual lease-to-own solutions at the point-of-sale via web and mobile technology. In accordance with the agreement and plan of merger entered into in connection with the transaction (the “Merger Agreement”), we issued to the former owners of Acima Holdings an aggregate of 10,779,923 shares of our common stock (the “Aggregate Stock Consideration”) and paid to them aggregate cash consideration of $1.3 billion (the “Aggregate Cash Consideration”). In accordance with the terms of the Merger Agreement, the portion of the Aggregate Stock Consideration issued to employee former owners of Acima Holdings is subject to restricted stock agreements providing vesting conditions over a 36-month period that began upon closing of the transaction. The portion of the Aggregate Stock Consideration issued to nonemployee former owners of Acima Holdings is subject to the terms of an 18-month lockup agreement, pursuant to which one-third of the aggregate shares of our common stock received by a non-employee former owner in the transaction becomes transferable after each six-month period following the closing of the transaction. We entered into a Registration Rights Agreement at the closing of the transaction pursuant to which certain former owners of Acima are entitled to registration rights in respect of the portion of the Aggregate Stock Consideration received by them in the transaction. The aggregate purchase price was approximately $1.4 billion, including the Aggregate Cash Consideration, and the 2,683,328 shares of the Aggregate Stock Consideration issued to non-employee former owners of Acima Holdings, valued at $51.14 per share, as of the closing date and discounted for lack of marketability on account of the transfer restrictions described above. The Aggregate Cash Consideration for the acquisition was financed with a combination of cash on hand, borrowings under our ABL Credit Facility and proceeds from issuances under our Term Loan Facility, as defined in Note 7, in addition to proceeds from the issuance of new unsecured senior notes. See Note 7 and Note 8 for additional information. The aggregate purchase price excludes the remaining 8,096,595 shares of the Aggregate Stock Consideration issued to employee former owners of Acima Holdings. Such shares were valued at $414.1 million, based on the per share price of $51.14 as of the date of closing. These shares are instead being recognized as stock-based compensation expense subject to ASC Topic 718, “Stock-based Compensation”, over the required vesting period, and recorded to Other charges in our unaudited Condensed Consolidated Statements of Operations. Assets acquired and liabilities assumed in connection with the acquisition have been recorded at their fair values. The following table provides the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date:
(in thousands) | February 17, 2021
Aggregate cash consideration | $ | 1,273,263 |
Aggregate stock consideration, subject to lockup agreements | 120,929 |
Total Purchase price | $ | 1,394,192 |
ASSETS ACQUIRED |
Receivables, net(1) | $ | 25,255 |
Prepaid expenses and other assets | 700 |
Rental merchandise |
On rent | 340,575 |
Property assets | 171,455 |
Operating lease right-of-use assets | 9,136 |
Deferred income taxes | 28,559 |
Goodwill | 219,530 |
Other intangible assets | 520,000 |
Total assets acquired | $ | 1,315,210 |
LIABILITIES ASSUMED |
Accounts payable - trade | 16,023 |
Accrued liabilities | 11,716 |
Operating lease liabilities | 9,689 |
Deferred income taxes | (116,410) |
Total liabilities assumed | (78,982) |
Total equity value | $ | 1,394,192 |
(1) Includes gross contractual receivables of $61.6 million related to merchandise lease contracts, of which $34.7 million were estimated to be uncollectible. Carrying value for assets and liabilities assumed as part of the acquisition, including receivables, prepaid expenses and other assets, accounts payable and accrued liabilities were recorded as fair value, as of the date of acquisition, due to the short term nature of these balances. Operating lease right-of-use assets and liabilities were recorded as the discounted value of future obligations in accordance with ASC Topic 842, “Leases”. The fair value measurements for acquired intangible assets and developed technology were primarily based on significant unobservable inputs (Level 3) developed using company-specific information. Certain fair value estimates were determined based on an independent valuation of the net assets acquired, including $340.6 million of rental merchandise and $520 million of identifiable intangible assets with an estimated weighted average useful life of 8 years, as follows:
Asset Class | Estimated Fair Value (in thousands) | Estimated Remaining Useful Life (in years)
Merchant relationships | $ | 380,000 |  | 10
Relationship with existing lessees | 60,000 |  | 1
Trade name | 40,000 |  | 7
Non-compete agreements | 40,000 |  | 3
Developed technology, included in Property assets, net, in line with our accounting policies, was also acquired with a value of $170.0 million and an estimated remaining useful life of 10 years. The fair value for these intangible and property assets were estimated using common industry valuation methods for similar asset types, based primarily on cost inputs and projected cash flows. In addition, we recorded goodwill of $219.5 million in our Acima operating segment, which consists of the excess of the net purchase price over the fair value of the net assets acquired. Goodwill represents expected cost and revenue synergies and other benefits expected to result within our retail partner business from the acquisition of Acima Holdings. The total value of goodwill for tax purposes, differs from recorded goodwill as a result of the Aggregate Stock Consideration subject to restricted stock agreements, differences in value assigned to other purchased assets, and acquisition-related expenses. Tax goodwill will be amortized over 15 years. Acima Holdings results of operations are reflected in our unaudited Condensed Consolidated Statements of Operations from the date of acquisition. Subsequent to the date of acquisition, we recorded certain adjustments to the purchase price allocation within the measurement period, including an adjustment to the fair value of rental merchandise decreasing the value of the acquired assets by approximately $17.1 million. The adjustment to the fair value of rental merchandise was based on further assessment of the carrying value of the assets and corresponding evaluation of related (Level 2) market inputs. Total cumulative measurement period adjustments resulted in a decrease to goodwill of approximately $(22.2) million. The purchase price allocation for the Acima Holdings acquisition was complete as of December 31, 2021. In connection with this acquisition, we incurred approximately $23.9 million in acquisition-related expenses including expenses related to legal, professional, and banking transaction fees, which are treated as an addition to goodwill for tax purposes. These costs were included in Other charges in our unaudited Condensed Consolidated Statements of Operations. The following unaudited pro forma combined results of operations present our financial results as if the acquisition of Acima had been completed on January 1, 2020. These unaudited pro forma results may not necessarily reflect the actual results of operations that would have been achieved, nor are they necessarily indicative of future results of operations. The unaudited pro forma information reflects the step-up and step-down depreciation and amortization adjustments for the fair value of the assets acquired, adjustments to stock compensation expense as a result of Aggregate Stock Consideration subject to restricted stock awards, the adjustments in interest expense due to the elimination of historical debt and placement of the new debt, and the related adjustments to the income tax provision. In addition, the pro forma net income has been adjusted to include transaction expenses and other non-recurring costs as of January 1, 2020. The unaudited pro forma financial information is as follows:
|  |  | Three Months Ended March 31,
(in thousands) |  |  |  |  | 2021 |  | 2020
|  |  |  |  | (unaudited) |  | (unaudited)
Pro Forma total revenues |  |  |  |  | $ | 1,231,386 |  |  | $ | 986,747 |
Pro Forma net earnings (loss)(1) |  |  |  |  | 56,413 |  |  | (12,687) |
(1)Total pro forma adjustments to net earnings (loss) represented decreases of $13.2 million and $101.9 million for the three months ended March 31, 2021 and 2020, respectively. Pro forma adjustments to net loss in 2020 include retro-active impacts related to purchase price allocation adjustments recorded, subsequent to the date of acquisition, within the measurement period described above. The amounts of revenue and earnings of Acima Holdings included in our Condensed Consolidated Statements of Operations from the acquisition date of February 17, 2021 are as follows:
(in thousands) | February 17, 2021 - March 31, 2021 | February 17, 2020 - March 31, 2020
| (unaudited) | (unaudited)
Total revenues | $ | 210,569 |  | $ | 143,439 |
Net earnings(1) | 19,006 |  | 21,025 |
(1)Net earnings for the period February 17, 2021 - March 31, 2021 and 2020 includes amortization of intangible assets acquired upon closing of the Acima Holdings acquisition.

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