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Business Combinations | 12 Months Ended
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Dec. 31, 2022
Business Combinations [Abstract] |
Business Combinations |
3. | Business Combinations
On October 1, 2020, Mastech Digital, Inc., through its wholly-owned subsidiary Mastech Digital Data, Inc., acquired all of the outstanding shares of AmberLeaf Partners, Inc. (“AmberLeaf”). Under the terms of the Share Purchase Agreement executed in connection with the AmberLeaf acquisition (the “Purchase Agreement”), the Company paid at the closing of the acquisition approximately $9.7 million in cash. The Purchase Agreement also requires the Company to pay to the former shareholders of AmberLeaf up to $4.5 million in deferred cash payments, which payments are contingent upon the AmberLeaf business achieving specific revenue growth and EBITDA margin targets. The amount of these deferred cash payments, if any, is based upon the revenue growth and EBITDA margins of the AmberLeaf business for the 12-month period beginning on January 1, 2021 and for the 12-month period beginning January 1, 2022, as described more fully in the Purchase Agreement. To fund the acquisition, on October 1, 2020 the Company entered into a Third Amendment (the “Third Amendment”) to its Credit Agreement, as amended and dated April 20, 2018. The Third Amendment revised the Credit Agreement by, among other things, (1) increasing the aggregate commitment amount of the revolving credit facility to $30 million (an increase of $7.5 million); (2) providing for the Term Loan facility in the aggregate amount of $17.5 million (an increase of $10 million); (3) providing for an increase in the total commitment amount to the facility in an aggregate amount not to exceed $15 million, upon the satisfaction of certain conditions; and (4) amending the financial covenant in the Credit Agreement related to the Company’s Fixed Charge Coverage Ratio (as defined in the Credit Agreement) by increasing the minimum permitted Fixed Charge Coverage Ratio for each of the fiscal quarters ending on or after September 30, 2020. The acquisition was accounted for using the acquisition method of accounting. The acquisition method of accounting requires that the assets acquired and liabilities assumed be measured at their fair value as of the closing date. The following table summarizes the fair value of consideration for the acquired business on the October 1, 2020 closing date:
(in thousands) |  | Amounts |
Cash purchase price at closing |  | $ | 9,664 |
Working capital adjustments |  |  | — |
Estimated payout of contingent consideration (1) |  |  | 2,882 |
Total Fair Value of Consideration |  | $ | 12,546 |
(1) | Based on a valuation conducted by an independent third party, the fair value of contingent consideration at the closing date was determined to be $2.9 million During 2021, the Company revalued the contingent consideration liability related to the AmberLeaf acquisition after determining that relevant conditions for payment of such liabilities were unlikely to be satisfied. The revaluation resulted in a $2.9 million reduction to the contingent consideration liability.
The cash purchase price at closing was paid with funds obtained from the following sources:
(in thousands) |  | Amounts |
Cash balances on hand |  | $ | — |
Increase in term loan debt facility |  |  | 10,000 |
Revolving line of credit |  |  | (336 | )
Cash Paid at Closing |  | $ | 9,664 |
The allocation of the purchase price was based on estimates of the fair value of assets acquired and liabilities assumed as of October 1, 2020, as set forth below. The excess purchase price over the fair values of the net tangible assets and identifiable intangible assets was recorded as goodwill, which includes value associated with the assembled workforce. Goodwill is expected to be largely deductible for tax purposes. The valuation of net assets acquired is as follows:
(in thousands) |  | Amounts |
Cash on hand |  | $ | 319 |
Working capital assets, net of liabilities |  |  | 1,153 |
Identifiable intangible assets: |  |  |  |
Client relationships |  |  | 2,970 |
Covenant not-to-compete |  |  | 440 |
Trade name |  |  | 490 |
Technology |  |  | 770 |
Total identifiable intangible assets |  |  | 4,670 |
Goodwill |  |  | 6,404 |
Net Assets Acquired |  | $ | 12,546 |
The fair value of identifiable intangible assets has been estimated using the income approach through a discounted cash flow analysis. Specifically, the Company used the income approach through an excess earnings analysis to determine the fair value of client relationships. The value applied to the covenant not-to-compete was based on an income approach using a “with or without” analysis of this covenant in place. The trade name and technology were valued using the income approach — relief from royalty method. All identifiable intangibles are considered level 3 inputs under the fair value measurement and disclosure guidance. The Company incurred $650,000 of transaction expenses related to the acquisition in 2020 inclusive of the write-off of $185,000 of deferred finance costs. In 2021, the company incurred $140,000 of transaction expenses related to an acquisition opportunity that was halted by us. These expenses are included in selling, general and administrative expenses in the accompanying Consolidated Statement of Operations. Included in the Consolidated Statement of Operations for year ended December 31, 2020 are revenues of $2.4 million and a net loss of approximately $0.4 million applicable to the Amber Leaf operations from our October 1, 2020 acquisition date through December 31, 2020. The following reflects the Company’s unaudited pro forma results had the results of AmberLeaf been included from January 1, 2020 for all periods presented:
|  | Years Ended December 31, |
|  | 2022 |  |  | 2021 |  |  | 2020 |
|  | (Amounts in thousands, except per share data) |
Revenue |  | $ | 242,338 |  |  | $ | 222,012 |  |  | $ | 202,842 |
Net income |  | $ | 8,712 |  |  | $ | 12,221 |  |  | $ | 10,594 |
Earnings per share — diluted |  | $ | .72 |  |  | $ | 1.02 |  |  | $ | .89 |
The information above does not reflect all of the operating efficiencies or inefficiencies that may have resulted from the AmberLeaf acquisition in those periods prior to the acquisition. Therefore, the unaudited pro forma information above is not necessarily indicative of results that would have been achieved had the business been combined during all periods presented.

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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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