Business Combinations

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

On June 30, 2021, the Company acquired 90.1% of the shares of common stock of Title365, an underwritten title insurance company engaged in the business of selling title insurance policies and escrow services throughout the United States, from Mr. Cooper Group Inc (“Mr. Cooper”). The Title365 acquisition will enable the Company’s customers to streamline the title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans.

The estimated purchase consideration as of the closing date was $421.1 million, which is subject to the post-closing adjustments based on the provisions of the purchase agreement. The cash portion of estimated consideration in the amount of $420.2 million was transferred on July 1, 2021; however, all closing conditions were satisfied and the control over Title365 transferred to the Company on June 30, 2021. The post-closing adjustments and the valuation of the redeemable noncontrolling interest were

finalized as of December 31, 2021, resulting in the total purchase price of $417.7 million, of which $416.8 million was cash consideration.

The preliminary purchase price allocation and measurement period adjustments, which include certain adjustments arising from errors primarily related to the allocation of the purchase price between intangible assets and goodwill, that the Company concluded are immaterial, are as follows:


	June 30, 2021 (as previously reported)		Measurement Period Adjustments		June 30, 2021 (as adjusted)
Preliminary identifiable assets acquired and liabilities assumed	(In thousands)
Cash and cash equivalents	$	16,500	$	—	$	16,500
Trade and other receivables	19,783		(5,935)		13,848
Prepaid expenses and other current assets	7,703		203		7,906
Property and equipment, net	4,031		(2,983)		1,048
Operating lease right-of-use assets	3,520		—		3,520
Intangible assets	194,000		(13,000)		181,000
Restricted cash, non-current	335		—		335
Accounts payable	(1,165)		—		(1,165)
Accrued compensation	(3,387)		(105)		(3,492)
Other current liabilities	(10,911)		—		(10,911)
Operating lease liabilities, non-current	(1,963)		—		(1,963)
Other long-term liabilities	(45,907)		3,504		(42,403)
Net identifiable assets	182,539		(18,316)		164,223
Redeemable noncontrolling interest	(46,266)		12,518		(33,748)
Goodwill	284,798		2,430		287,228
Total purchase consideration	$	421,071	$	(3,368)	$	417,703


	June 30, 2021 (as previously reported)	Measurement Period Adjustments		June 30, 2021 (as adjusted)
Fair value of consideration transferred	(In thousands)
Cash consideration	420,216	$	(3,368)	$	416,848
Fair value of replacement share-based payment awards	855	—		855
Total purchase consideration	421,071	$	(3,368)	$	417,703

The acquisition was accounted for as a business combination using the acquisition method of accounting in accordance with ASC 805, Business Combinations. The purchase price was allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net identifiable assets acquired was allocated to goodwill, which is not expected to be deductible for tax purposes. However, ASC 805-740-30-3 requires that changes in assumptions about the realizability of an acquirer's valuation allowance as a result of a business combination are recorded separately from the business combination accounting. The goodwill, which was recorded to the Title365 segment, predominantly arises due to synergies the Company expects to achieve through integration of Title365 with the Company’s existing software platform, enabling financial services firms to automate title commitments and streamline communication with consumers and settlement teams.

The acquired intangible assets consist of the following:


	Fair Value		Estimated Useful Life
	(In thousands)		(In years)
Customer relationships	$	179,000	11
Licenses	2,000		Indefinite
Total intangible assets	$	181,000

Customer relationships represent the fair value of future projected revenue that will be derived from sales of products to existing customers of the Title365 business. The fair value of customer relationships was estimated using the multi-period excess earnings method. The significant assumptions used in the valuation included the estimated annual net cash flows expected to be generated from the acquired customer portfolio (including appropriate revenue and profit attributable to the asset, attrition curve, tax rate, contributory asset charges, among other factors) and the discount rate. The economic useful life was determined by evaluating several factors, including the estimated cash flows used in the valuation.

Licenses represent intangible assets that legally entitle the Company to conduct business in certain states. The fair value of licenses was determined using the replacement cost method. The significant assumptions used in the valuation included the estimated employee costs and other costs per license application.

Restricted cash consists of certificates of deposit maintained to comply with regulatory requirements.

Other long-term liabilities represents the deferred tax liability resulting primarily from the allocation of a portion of the purchase consideration to non-deductible identifiable intangible assets.

The redemption value of the noncontrolling interest is based on the greater of (1) $49.5 million plus an amount of interest calculated using an interest rate of 5.0% per annum compounding annually; or (2) 4.4 multiplied by the trailing 12-month EBITDA multiplied by the noncontrolling interest ownership percentage. As such, the fair value of the redeemable noncontrolling interest in Title365 was determined using a Monte Carlo simulation whereby a range of possible scenarios of future EBITDA was considered. In each scenario an analysis was performed to determine the optimal decision for the Company on the timing to exercise the call option. Based on the optimal decision in each simulation, the payoff was discounted to the acquisition date and the average of the discounted payoff across the simulation paths was determined to represent the fair value of the noncontrolling interest.

Measurement period adjustments recorded in the year ended December 31, 2021 primarily relate to finalization of the cash portion of purchase consideration related to the final working capital calculations in accordance with the stock purchase agreement, finalization of the fair value analysis of intangible assets, including the related tax effect on the deferred tax liabilities, and finalization of the fair value analysis of redeemable noncontrolling interest. Measurement period adjustments were also recorded to the purchase price allocated to trade and other receivables related to changes in amounts due from the 9.9% noncontrolling interest holder of Title365.

The allocation of purchase price to acquired net identifiable assets is preliminary as the review of tax returns that provide the underlying tax basis of Title365 assets and liabilities is not yet complete, thus the provisional measurements of fair value of deferred tax liabilities set forth above are subject to change. The Company expects to finalize the allocation of the purchase price as soon as practical, but not later than one year from the acquisition date.

The Company has incurred transaction costs of approximately $8.5 million in the year ended December 31, 2021, which were recorded in general and administrative expenses in the consolidated statements of operations and comprehensive loss.

The results of operations of Title365 have been included in the Company’s consolidated statements of operations and comprehensive loss from the acquisition date. Title365 revenue since the acquisition date through December 31, 2021 was approximately $98.9 million, and Title365 net income was approximately $7.8 million.

Unaudited Pro Forma Financial Information

The following unaudited pro forma information gives effect to the acquisition of Title365 as if it had been completed on January 1, 2020 (the beginning of the comparable prior reporting period). The pro forma financial information presented below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at the beginning of fiscal year 2020, nor does it attempt to represent the results of future operations of the combined entities under the ownership and operation of the Company. The pro forma results of operations also do not include any cost savings or other synergies that may result from this business combination or any estimated costs that have been or will be incurred by the Company to integrate the acquired assets. These pro forma results are based on estimates and assumptions, and include the business combination accounting effects resulting from the transaction, including the amortization charges from acquired intangible assets, employee retention costs, interest expense associated with the credit facility proceeds, which were utilized to partially fund the payment of the purchase consideration, and other purchase accounting adjustments and the related tax effects as though the Company and Title365 were combined as of the beginning of January 1, 2020.


	Year Ended December 31,
		2021		2020
		(In thousands)
Revenues(1)		$	363,637	$	293,901
Net loss		(180,904)		(39,177)
Net income attributable to redeemable noncontrolling interest		3,276		1,591
Net loss attributable to Blend Labs, Inc.		(184,180)		(40,768)
(1) As part of the Company’s evaluation of Title365 accounting policies post-acquisition, Title365 revenue was adjusted to be presented net of insurance premiums paid to the underwriters, in accordance with Principal vs. Agent considerations included in ASC 606, Revenue Recognition.