Acquisitions and Dispositions of Businesses

9 Months Ended

Sep. 30, 2021

Acquisitions And Dispositions [Abstract]

Acquisitions and Dispositions of Businesses

ACQUISITIONS AND DISPOSITIONS OF BUSINESSES

Acquisitions. On June 14, 2021, the Company acquired all of the outstanding common shares of Leaf Group Ltd. (Leaf) for $308.6 million in cash and the assumption of $9.2 million in liabilities related to their previous stock compensation plan, which will be paid in the future. Leaf is a consumer internet company that builds creator-driven brands in lifestyle and home and art design categories. The acquisition is expected to provide benefits in the future by diversifying the Company’s business operations and providing operating synergies with other business units. The Company includes Leaf in other businesses.

During 2020, the Company acquired three businesses: two in education and one in other businesses for $96.8 million in cash and contingent consideration. The assets and liabilities of the companies acquired were recorded at their estimated fair values at the date of acquisition.

In the first three months of 2020, Kaplan acquired two small businesses; one in its supplemental education division and one in its international division.

In May 2020, the Company acquired an additional interest in Framebridge, Inc. for cash and contingent consideration that resulted in the Company obtaining control of the investee. Following the acquisition, the Company owns 93.4% of Framebridge. The Company previously accounted for Framebridge under the equity method, and included it in Investments in Affiliates on the Condensed Consolidated Balance Sheet (see Note 3). The contingent consideration is primarily based on Framebridge achieving revenue milestones within a specific time period. The fair value of the contingent consideration at the acquisition date was $50.6 million, determined using a Monte Carlo simulation. The fair value of the redeemable noncontrolling interest in Framebridge was $6.0 million as of the acquisition date, determined using a market approach. The minority shareholder has an option to put 20% of the minority shares annually starting in 2024. The acquisition is expected to provide benefits in the future by diversifying the Company’s business operations and is included in other businesses.

Acquisition-related costs for acquisitions that closed during the first nine months of 2021 and 2020 were $1.6 million and $1.1 million, respectively, and were expensed as incurred. The aggregate purchase price of the 2021 and 2020 acquisitions was allocated as follows (2021 on a preliminary basis), based on acquisition date fair values to the following assets and liabilities:

	Purchase Price Allocation
	Nine Months Ended		Year Ended
(in thousands)	September 30, 2021		December 31, 2020
Accounts receivable	$	16,080	$	745
Inventory	777		3,496
Property, plant and equipment	6,019		3,346
Lease right-of-use assets	7,744		6,580
Goodwill	167,334		73,951
Amortized intangible assets	88,000		14,589
Other assets	4,507		975
Deferred income taxes	40,850		15,958
Other liabilities	(49,823)		(14,917)
Current and noncurrent lease liabilities	(7,742)		(6,593)
Redeemable noncontrolling interest	—		(6,005)
Aggregate purchase price, net of cash acquired	$	273,746	$	92,125

The 2021 fair values recorded were based upon preliminary valuations and the estimates and assumptions used in such valuations are subject to change within the measurement period (up to one year from the acquisition date). The recording of deferred tax assets and liabilities, and the amounts of residual goodwill and other intangibles are not yet finalized. Goodwill is calculated as the excess of the consideration transferred over the net assets recognized and represents the estimated future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. The goodwill recorded due to these acquisitions is attributable to the assembled workforces of the acquired companies and expected synergies. The Company expects to deduct $43.4 million and $3.2 million of goodwill for income tax purposes for the acquisitions completed in 2021 and 2020, respectively.

The acquired companies were consolidated into the Company’s financial statements starting on their respective acquisition dates. The Company's Condensed Consolidated Statements of Operations for the third quarter of 2021 include aggregate revenues and operating losses for the company acquired in 2021 of $57.5 million and $7.2 million, respectively. The Company's Condensed Consolidated Statements of Operations include aggregate revenues and operating losses of $66.7 million and $9.1 million, respectively, for the first nine months of 2021. The following unaudited pro forma financial information presents the Company’s results as if the current year acquisitions had occurred at the beginning of 2020. The unaudited pro forma information also includes the 2020 acquisitions as if they occurred at the beginning of 2019:

	Three Months Ended   September 30				Nine Months Ended   September 30
(in thousands)	2021		2020		2021		2020
Operating revenues	$	809,810	$	780,302	$	2,416,109	$	2,255,760
Net income	40,066		75,328		257,887		38,627

These pro forma results were based on estimates and assumptions, which the Company believes are reasonable, and include the historical results of operations of the acquired companies and adjustments for depreciation and

amortization of identified assets and the effect of pre-acquisition transaction related expenses incurred by the Company and the acquired entities. The pro forma information does not include efficiencies, cost reductions and synergies expected to result from the acquisitions. They are not the results that would have been realized had these entities been part of the Company during the periods presented and are not necessarily indicative of the Company’s consolidated results of operations in future periods.

Sale of Businesses. In December 2020, the Company completed the sale of Megaphone which was included in other businesses.

Other Transactions. In March 2021, Hoover’s minority shareholders put the remaining outstanding shares to the Company, which had a redemption value of $3.5 million. Following the redemption, the Company owns 100% of Hoover.