Acquisition

9 Months Ended

Sep. 30, 2021

On June 1, 2021, we acquired all of the equity of First American in a cash transaction for $956,717, net of cash, cash equivalents, restricted cash and restricted cash equivalents acquired, subject to customary adjustments under the terms of the acquisition agreement. First American is a large-scale payments technology company that provides partners and merchants with comprehensive in-store, online and mobile payment solutions. The preliminary allocation of the purchase price to the assets acquired and liabilities assumed resulted in non-tax deductible goodwill of $732,520. The transaction resulted in goodwill as First American provides an end-to-end payments technology platform, which we believe will provide significant leverage to accelerate organic growth.

The acquisition was funded with cash on hand and proceeds from new debt. Information regarding our debt can be found in Note 12. The goodwill and results of operations of First American from the date of acquisition are included in the Payments segment.

The acquisition was accounted for as a business combination and the preliminary allocation of the purchase price to the assets acquired and liabilities assumed was based upon preliminary valuations performed to determine the fair values of the acquired items as of the acquisition date. The valuations, particularly as they relate to intangible assets, are preliminary. They may be adjusted for up to one year after the closing date to reflect final valuations, as we continue to evaluate the various inputs utilized in the valuations. During the quarter ended September 30, 2021, we recorded measurement-period adjustments that included a $3,788 decrease in goodwill and a $3,694 increase in internal-use software. The following illustrates the preliminary allocation of the purchase price, as of September 30, 2021, to the assets acquired and liabilities assumed:


(in thousands)	Purchase price allocation
Accounts receivable	$	27,296
Other current assets	8,533
Property, plant and equipment	9,873
Operating lease assets	24,396
Intangible assets:
Customer relationships	118,000
Partner relationships	67,000
Technology-based intangibles	66,000
Trade names	22,000
Internal-use software	6,111
Total intangible assets	279,111
Goodwill	732,520
Other non-current assets	350
Accounts payable	(18,475)
Funds held for customers	(9,428)
Accrued liabilities	(20,551)
Operating lease liabilities, non-current	(21,316)
Deferred income taxes	(51,216)
Other non-current liabilities	(4,376)
Payment for acquisition, net of cash, cash equivalents, restricted cash and restricted cash equivalents acquired of $15,841	$	956,717

Information regarding the useful lives of the acquired intangibles can be found in Note 3. Information regarding the calculation of the estimated fair values of the acquired intangibles can be found in Note 8.

Our results of operations for the quarter ended September 30, 2021 included revenue of $82,485 and net income of $890 from the operations of First American. Our results of operations for the nine months ended September 30, 2021 included revenue of $109,828 and net income of $824 from the operations of First American. In addition, we incurred acquisition transaction costs of $208 for the quarter ended September 30, 2021 and $18,816 for the nine months ended September 30, 2021, which were included in SG&A expense in the consolidated statements of comprehensive income.

The following unaudited pro forma financial information summarizes our consolidated results of operations as though the acquisition occurred on January 1, 2020:


	Pro Forma Statements of Comprehensive Income (Loss)
	Quarter Ended September 30,			Nine Months Ended September 30,
(in thousands)		2020		2021		2020
Revenue		$	628,356	$	1,613,333	$	1,664,644
Net income (loss) attributable to Deluxe		21,694		50,176		(58,565)

The unaudited pro forma financial information was prepared in accordance with our accounting policies, which can be found under the caption "Note 1: Significant Accounting Policies" in the Notes to Consolidated Financial Statements appearing in the 2020 Form 10-K. The pro forma information includes adjustments to reflect the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied from January 1, 2020, with the consequential tax effects. The pro forma information also includes adjustments to reflect the additional interest expense on the debt we issued to fund the acquisition (Note 12). The acquisition transaction costs we incurred are reflected in the pro forma results for the nine months ended September 30, 2020.

This pro forma financial information is for informational purposes only. It does not reflect the integration of the businesses or any synergies that may result from the acquisition. As such, it is not indicative of the results of operations that would have been achieved had the acquisition been consummated on January 1, 2020. In addition, the pro forma amounts are not indicative of future operating results.