ACQUISITIONS

6 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

2022 Acquisitions

Acquisition of Targus

On October 18, 2022, the Company acquired all of the issued and outstanding shares of Targus in a transaction pursuant to a purchase agreement among Targus, the sellers identified therein, and the other parties thereto. The purchase price consideration totaled $247,546, which consisted of cash in the amount of $112,686, seller financing of $54,000, the issuance of $59,016 in 6.75% senior notes due 2024, the issuance of $15,329 of the Company’s common stock and stock options, and deferred payments of $6,515. In accordance with ASC 805, the Company used the acquisition method of accounting for this acquisition. Goodwill of $79,421 and other intangible assets of $89,000 were recorded as a result of the acquisition. The acquisition complements the Company’s existing investments and offers potential growth to the Company’s operations in the Consumer segment.

The assets and liabilities of Targus, both tangible and intangible, were recorded at their estimated fair values as of the October 18, 2022 acquisition date. Acquisition related costs, such as legal, accounting, valuation and other professional fees related to the acquisition of Targus, were charged against earnings in the amount of $1,921 and included in selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022. Targus goodwill recognized subsequent to the acquisition will be non-deductible for tax purposes.

The fair value of acquisition consideration and preliminary purchase price allocation was as follows:


Consideration paid:
Cash	$	112,686
Fair value of seller financing	54,000
Fair value of 2,400,000 RILYO shares issued in senior notes at $24.59 per share	59,016
Fair value of 227,491 B. Riley common shares issued at $42.11 per share	9,580
Fair value of 215,876 stock options attributable to service period prior to acquisition	5,749
Fair value of deferred payments	6,515
Total consideration	$	247,546

Assets acquired and liabilities assumed:
Cash and cash equivalents	$	18,810
Accounts receivable	91,039
Prepaid and other assets	90,289
Right-of-use assets	7,665
Property and equipment	8,320
Other intangible assets	89,000

Accounts payable	(54,553)
Accrued expenses and other liabilities	(62,579)
Deferred income taxes	(9,989)
Contingent consideration	(2,212)
Lease liability	(7,665)
Net tangible assets acquired and liabilities assumed	168,125
Goodwill	79,421
Total	$	247,546

During the six months ended June 30, 2023, goodwill for Targus changed by $3,668 related to certain purchase price accounting adjustments.

The following is a summary of identifiable intangible assets acquired and the related expected lives for the finite-lived intangible assets:

Category

Useful life

Fair Value

Customer relationships

9 years

50,000

Internally developed software and other intangibles

1 to 3 years

4,000

Tradenames

N/A

35,000

Total

89,000

Unaudited Pro Forma Information

Acquisition of Targus

The following unaudited pro forma financial information is presented to illustrate the estimated effects of the acquisition of Targus as if it had occurred on January 1, 2021.


	Pro Forma (unaudited)
	Three Months Ended June 30, 2022		Six Months Ended June 30, 2022

Revenues	$	233,834	$	575,121
Net loss	$	(135,394)	$	(142,707)
Net loss attributable to B. Riley Financial, Inc.	$	(138,965)	$	(147,144)
Net loss attributable to common shareholders	$	(140,967)	$	(151,148)

These pro forma results do not necessarily represent the results of operations that would have been achieved if the acquisition had taken place on January 1, 2021, nor are they indicative of the results of operations for future periods.

Other Acquisitions

During the year ended December 31, 2022, the Company converted $17,500 of a loan receivable with Lingo into equity and the Company's ownership interest in Lingo increased from 40% to 80%. This resulted in the consolidation of Lingo and the pre-existing equity method investment was remeasured at fair value resulting in the recognition of a gain of $6,790, which is included in trading (losses) income and fair value adjustments on loans in the consolidated statements of operations. Upon the consolidation of Lingo on May 31, 2022, the total fair value of the assets of Lingo was $116,500 and the fair value of the 20% noncontrolling interest was $8,021. As part of the acquisition, the Company assumed liabilities in the amount of $32,172 and recorded goodwill of $34,412 and other intangible assets of $63,000 were recorded in the accompanying consolidated balance sheet.

During the year ended December 31, 2022, the Company also completed the acquisitions of BullsEye Telecom (“BullsEye”), FocalPoint Securities, LLC (“FocalPoint”), and Atlantic Coast Fibers, LLC (“ACR”) (and related businesses), and other immaterial business. In accordance with ASC 805, the Company used the acquisition method of accounting for these acquisitions, which were not material to our consolidated financial statements. The aggregate purchase price consideration consisted of $145,987 in cash, $20,320 in issuance of common stock of the Company, $52,969 in assumed debt and other consideration payable. The purchase price allocation consisted of $151,925 in goodwill, $52,860 in intangible assets, and $2,522 in net assets acquired. The results of operations of the acquisitions which were not material have been included in our consolidated financial statements from the date of purchase. During the six months ended June 30, 2023, certain working capital holdback provisions in the BullsEye purchase agreement were finalized resulting in the Company receiving $672 of cash, which reduced goodwill from $151,925 to $151,253.

Valuation Assumptions for Purchase Price Allocation

Our valuation assumptions used to value the acquired assets and assumed liabilities require significant estimates, especially with respect to intangible assets, inventories, property and equipment, and deferred income taxes. In determining the fair value of intangible assets acquired, the Company must make assumptions about the future performance of the acquired businesses, including among other things, the forecasted revenue growth attributable to the asset groups and projected operating expenses inclusive of expected synergies, future cost savings, and other benefits expected to be achieved by combining the businesses acquired with the Company. The intangible assets acquired are primarily comprised of customer relationships, trade names and trademarks, developed technology, and backlog. The Company utilized widely accepted income-based, market-based, and cost-based valuation approaches to perform the preliminary purchase price allocations. The estimated fair value of the customer relationships and backlog are determined using the multi-period excess earnings method and the estimated fair value of the trade names and trademarks and developed technology are determined using the relief from royalty method. Both methods require forward looking estimates that are discounted to determine the fair value of the intangible asset using a risk-adjusted discount rate that is reflective of the level of risk associated with future estimates associated with the asset group that could be affected by future economic and market conditions.