Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v3.21.2
Acquisitions
9 Months Ended
Sep. 30, 2021
Business Combinations [Abstract]  
Acquisitions
4. Acquisitions
The Business Combination
On October 12, 2020, the Company, Replay and FoA Equity entered into a Transaction Agreement (the “Transaction Agreement”) pursuant to which Replay agreed to combine with FoA Equity in a series of transactions that resulted in the Company becoming a publicly-traded company on the New York Stock Exchange (“NYSE”) and controlling FoA Equity in an
“UP-C”
structure. At the Closing on April 1, 2021, Replay domesticated into a Delaware corporation, and the Company was formed. Following the Closing, the public investors held Class A Common Stock representing approximately a 31.3% economic interest, and BTO Urban Holdings L.L.C., a Delaware limited liability company (“BTO Urban”), Blackstone Family Tactical Opportunities Investment Partnership – NQ – ESC L.P., a Delaware limited partnership (“ESC”), Libman Family Holdings LLC, a Connecticut limited liability company (“Family Holdings”), The Mortgage Opportunity Group LLC, a Connecticut limited liability company (“TMO”), L and TF, LLC, a North Carolina limited liability company (“L&TF”), UFG Management Holdings LLC, a Delaware limited liability company (“Management Holdings”), and Joe Cayre (each of BTO Urban, ESC, Family Holdings, TMO, L&TF, Management Holdings and Joe Cayre, a “Seller” and, collectively, the “Sellers” or the “Continuing Unitholders”) retained a 68.7% economic interest in FoA Equity in the form of Class A LLC Units. Additionally, the Company issued to the Continuing Unitholders shares of Class B Common Stock, which have no economic rights but entitle each holder to a number of votes that is equal to the aggregate number of Class A LLC Units held by such holder on all matters on which shareholders of the Company are entitled to vote generally. Subsequent to the Closing, the Company controls FoA Equity as the sole appointer of the board of managers and is a holding company with no assets or operations other than its equity interest in FoA Equity.
The Business Combination was accounted for using the acquisition method with the Company as the accounting acquirer. Under the acquisition method of accounting, the Company’s assets and liabilities were recorded at carrying value, and the assets and liabilities associated with FoA Equity were recorded at estimated fair value as of the Closing Date. The excess of the purchase price over the estimated fair values of the net assets acquired was recognized as goodwill. For accounting purposes, the acquirer is the entity that has obtained control of another entity and, thus, consummated a business combination. The determination of whether control has been obtained begins with the evaluation of whether control should be evaluated based on the variable interest or voting interest model. If the acquiree is a variable interest entity, the primary beneficiary would be the accounting acquirer. FoA Equity met the definition of a variable interest entity, and the Company was determined to be the primary beneficiary.
As a result of the Business Combination, the Company’s financial statement presentation distinguishes FoA Equity as the “Predecessor” through the Closing Date. FoA is the “Successor” for periods after the Closing Date. As a result of the application of the acquisition method of accounting in the Successor period, the consolidated financial statements for the Successor period are presented on a full
step-up
basis, and are therefore not comparable to the consolidated financial statements of the Predecessor period that are not presented on the same full
step-up
basis.
The consolidated financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, any provisional amount adjustments will be recognized during the reporting period in which the adjustments are determined. The Company will also be required to record, in the same period’s consolidated financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the Closing Date. The purchase price allocation, while provisional, has been substantially completed. The allocation will be finalized as soon as practicable, but no later than one year from the Closing Date. The following table summarizes the provisional estimated fair value of consideration transferred, noncontrolling interest equity value, assets acquired and liabilities assumed in conjunction with the Business Combination (in thousands):
 
Consideration transferred:
      
Total cash consideration
   $ 342,270
Blocker rollover equity
     221,811
Seller earnout contingent consideration
(1)
     160,272
Tax receivable agreement obligations to the seller
     31,950
    
 
 
 
Total consideration transferred
     756,303
Noncontrolling interest
     1,658,545
    
 
 
 
Total equity value
   $ 2,414,848
    
 
 
 
Assets acquired:
      
Cash and cash equivalents
   $ 336,075
Restricted cash
     305,292
Reverse mortgage loans held for investment, subject to HMBS related obligations, at fair value
     10,071,192
Mortgage loans held for investment, subject to nonrecourse debt, at fair value
     5,291,443
Mortgage loans held for investment, at fair value
     1,100,544
Mortgage loans held for sale, at fair value
     2,140,361
Debt securities
     9,230
Mortgage servicing rights, at fair value
     267,364
Derivative assets
     116,479
Fixed assets and leasehold improvements, net
     26,079
Intangible assets, net
(2)
     717,700
Other assets, net
     279,155
    
 
 
 
Total assets acquired
   $ 20,660,914
    
 
 
 
Liabilities assumed:
      
HMBS related obligations, at fair value
   $ 9,926,131
Nonrecourse debt, at fair value
     5,227,942
Other financing lines of credit
     3,340,345
Payables and other liabilities
     669,048
Notes payable, net
     353,924
    
 
 
 
Total liabilities assumed
   $ 19,517,390
    
 
 
 
Net identifiable assets acquired
     1,143,524
    
 
 
 
Goodwill
(3)
   $ 1,271,324
    
 
 
 
 
(1)
Represents the estimated fair market value of earnout shares issued to Sellers, which will be settled with shares of Class A Common Stock and is accounted for as equity classified contingent consideration. These estimated fair values are preliminary and subject to adjustments in subsequent periods.
(2)
Intangible assets were identified that met either the separability criterion or contractual legal criterion. The evaluations of the facts and circumstances available as of April 1, 2021, to assign provisional fair values to assets acquired and liabilities assumed are ongoing, including the assessments of the economic characteristics of intangible assets. These evaluations may result in changes to the provisional amounts recorded based on third party valuations performed. The indefinite lived trade names and definite lived trade names intangible assets represent the values of all the Company’s trade names. The broker/customer relationships intangible asset represents the existing broker/customer relationships.
(3)
Goodwill represents the excess of the gross consideration transferred over the provisional fair value of the underlying net tangible and identifiable intangible assets acquired. Goodwill represents future economic benefits arising from acquiring FoA Equity, primarily due to its strong market position and its assembled workforce that are not individually identified and separately recognized as intangible assets. Approximately $85.2 million of the goodwill recognized is expected to be deductible for income tax purposes.
There were certain transaction expenses contingent on the Closing (i.e. the change-in-control event). Given these expenses were triggered by the successful Closing of the Business Combination, the payment of $5.0 million is considered to have been incurred “on the line”, i.e., these expenses are not presented in either the Predecessor or Successor periods.
The following unaudited pro forma financial information presents the results of operations as if the Business Combination had occurred on January 1, 2020. The 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.
 
Identifiable intangible assets
  
Provisional

Fair value

(in thousands)
    
Provisional

Useful life

(in years)
 
Indefinite lived trade names
   $ 178,000        N/A  
Definite lived trade names
     8,800        10  
Broker/customer relationships
     530,900       
8-15
 
    
 
 
          
Total
   $ 717,700           
    
 
 
          
 
(in thousands)
  
For the three months ended

September 30,
 
  
For the nine months ended

September 30,
 
 
  
2021
 
  
2020
 
  
2021
 
  
2020
 
 
  
 
 
  
 
 
  
 
 
  
 
 
Pro forma revenues
   $ 456,500      $ 600,540      $ 1,354,046      $ 1,240,824  
Pro forma net income
     50,797        188,723        161,614        193,622  
Pro forma net income attributable to controlling interest
     21,424        45,300        50,406        53,958  
Pro forma net income (loss) attributable to noncontrolling interest
     29,373        143,423        111,208        139,664  
Renovate America Inc.
On March 26, 2021, in order to expand its product base to home improvement loans, the Company acquired certain assets and operations of Renovate America, Inc. (“RAI”) (the “RAI Transaction”).
The RAI Transaction met the requirements to be considered a business combination under ASC 805. The assets purchased and liabilities assumed from the RAI Transaction have been recorded at fair market value and included in the Company’s consolidated financial statements from the date of the RAI Transaction. The Company has allocated the purchase price to the tangible and identifiable intangible assets based on their estimated fair market values at the date of the RAI Transaction as required under ASC 805. The excess of the purchase price over the fair value of the net identifiable tangible and intangible assets was recorded as goodwill. The goodwill generated by the RAI Transaction is expected to be deductible for U.S. federal income tax purposes.
As a result of the RAI Transaction, for accounting purposes, FAM was deemed to be the accounting acquirer and RAI was deemed to be the accounting acquiree.
The RAI Transaction was accounted for using the acquisition method of accounting and the fair value of the total purchase consideration transferred was $43.5 
million, including cash and the relief of obligations owed to FAM by the debtor in possession of RAI. There
was no contingent consideration as part of the RAI Transaction.
The purchase price allocation, while provisional, has been substantially completed. The allocation will be finalized as soon as practicable, but no later than one year from the Closing Date. The following table sets forth the provisional fair values of the assets acquired in connection with the RAI Transaction (in thousands): 
 
    
Acquisition Date
Fair Value
 
L
oans held for sale, at fair
value
(1)
   $ 35,226  
Intangible assets
     1,890  
Goodwill
     5,627  
Other assets, net
     753  
    
 
 
 
Net assets acquired
   $ 43,496  
    
 
 
 
 
(1)
These loans held for sale, at fair value are included as a component of mortgage loans held for sale, at fair value on the Consolidated Statements of Financial Condition.
Goodwill is comprised of expected future benefits for the Company and the assembled workforce acquired in the RAI Transaction, which do not qualify as separately recognized intangible assets. Goodwill associated with the RAI Transaction is assigned to the Company’s Mortgage Originations reportable segment, which represents the Company’s reporting unit that is expected to benefit from the assembled workforce acquired in the RAI Transaction.
Below is a summary of the identifiable intangible asset acquired in the RAI Transaction:
 
    
Provisional Fair
Value

(in thousands)
    
Provisional Useful
Life

(in years)
 
Technology
   $ 1,890        5