5. Acquisitions and Dispositions

Acquisitions

RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc. and RE/MAX of Southern Ohio, Inc.

On December 15, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Georgia, Inc. (“RE/MAX of Georgia”), RE/MAX of Kentucky/Tennessee, Inc. (“RE/MAX of Kentucky/Tennessee”), and RE/MAX of Southern Ohio, Inc. (“RE/MAX of Southern Ohio”), collectively (“RE/MAX Regional Services”) including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the states of Georgia, Kentucky and Tennessee and in Southern Ohio for cash consideration of $50,400,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company funded the acquisition by refinancing its then outstanding credit facility (See Note 8, Debt) and using cash from operations.

RE/MAX of New Jersey, Inc.

On December 1, 2016, RE/MAX, LLC acquired certain assets and assumed certain liabilities of RE/MAX of New Jersey, Inc. (“RE/MAX of New Jersey”), including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of New Jersey for cash consideration of $45,000,000. RE/MAX, LLC acquired these assets and liabilities in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.

The Company finalized its accounting for the acquisitions of RE/MAX Regional Services and RE/MAX of New Jersey during the three months ended September 30, 2017. Adjustments recorded during the measurement-period are calculated as if they were known at the acquisition date, but are recognized in the reporting period in which they are determined. The Company does not revise or adjust any prior period information. In finalizing the accounting for these acquisitions, adjustments were made during the three months ended September 30, 2017 to the condensed consolidated balance sheet to decrease “Goodwill” by $4,200,000 with a corresponding increase to “Franchise agreements, net” of $4,200,000. The Company recognized a reduction in depreciation and amortization expense of $765,000 during the three months ended September 30, 2017 in connection with these measurement adjustments.

Full House Mortgage Connection, Inc.

Motto Franchising, LLC (“Motto Franchising”), a wholly-owned subsidiary of RE/MAX, LLC, was formed and developed to franchise mortgage brokerages. On September 12, 2016, Motto Franchising acquired certain assets of Full House, a franchisor of mortgage brokerages that created concepts used to develop Motto, for initial cash consideration of $8,000,000. Motto Franchising, as a franchisor, grants each franchisee a license to use the Motto Mortgage brand, trademark, promotional and operating materials and concepts. The Company used cash generated from operations to initially fund the acquisition. Additional cash consideration may be required based on future revenues generated. The contingent purchase consideration and its subsequent valuation is more fully described in Note 9, Fair Value Measurements.

The following table summarizes the consideration at acquisition (in thousands):


Cash consideration	$	8,000
Contingent purchase consideration (See note 9)		6,300
Total purchase price	$	14,300

RE/MAX of Alaska, Inc.

On April 1, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of Alaska, Inc. (“RE/MAX of Alaska”), including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of Alaska for cash consideration of $1,500,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.

RE/MAX of New York, Inc.

On February 22, 2016, RE/MAX, LLC acquired certain assets of RE/MAX of New York, Inc. (“RE/MAX of New York”), including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the state of New York for cash consideration of $8,500,000. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. The Company used cash generated from operations to fund the acquisition.

The following table summarizes the allocation of the purchase price to the fair value of assets acquired and liabilities assumed for the aforementioned acquisitions (in thousands):


	RE/MAX Regional Services		RE/MAX of New Jersey		Full House		RE/MAX of Alaska		RE/MAX of New York		Total
Cash and cash equivalents	$	-	$	335	$	-	$	-	$	131	$	466
Franchise agreements		30,700		29,700		-		529		5,000		65,929
Non-compete agreement		-		-		2,500		-		-		2,500
Other assets		-		-		-		-		340		340
Goodwill		19,700		15,300		11,800		971		3,029		50,800
Other liabilities		-		(335)		-		-		-		(335)
Total purchase price	$	50,400	$	45,000	$	14,300	$	1,500	$	8,500	$	119,700

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisitions of RE/MAX Regional Services, RE/MAX of New Jersey, Full House, RE/MAX of Alaska and RE/MAX of New York had occurred on January 1, 2016. The historical financial information has been adjusted to give effect to events that are (1) directly attributed to the acquisitions, (2) factually supportable and (3) expected to have a continuing impact on the combined results, including additional amortization expense associated with the valuation of the acquired franchise agreements. This unaudited pro forma information should not be relied upon as necessarily being indicative of the historical results that would have been obtained if the acquisitions had actually occurred on that date, nor of the results that may be obtained in the future (in thousands, except per share information).


	Three Months Ended		Nine Months Ended
	September 30, 2016		September 30, 2016
Total revenue	$	48,781	$	141,073
Net income attributable to RE/MAX Holdings, Inc. (a)	$	7,090	$	18,165
Basic earnings per common share	$	0.40	$	1.03
Diluted earnings per common share	$	0.40	$	1.03

(a)

Nine months ended September 30, 2016 includes the net impact of $1,000,000 in professional fees and debt extinguishment costs incurred related to the amendment of the Company’s credit facility. See Note 8, Debt for a discussion of the credit facility.

Dispositions

STC Northwest, LLC d/b/a RE/MAX Northwest Realtors

On January 20, 2016, the Company sold certain operating assets and liabilities related to three owned brokerage offices located in the U.S., of STC Northwest, LLC d/b/a RE/MAX Northwest Realtors, a wholly owned subsidiary of the Company. The Company recognized a loss on the sale of the assets and the liabilities transferred of approximately $90,000 during the first quarter of 2016, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the accompanying Condensed Consolidated Statements of Income. In connection with this sale, the Company transferred separate office franchise agreements to the purchaser, under which the Company will receive ongoing monthly continuing franchise fees and broker fees.

Sacagawea, LLC d/b/a RE/MAX Equity Group

On December 31, 2015, the Company sold certain operating assets and liabilities related to 12 owned brokerage offices located in the U.S., of Sacagawea, LLC d/b/a/ RE/MAX Equity Group (“RE/MAX Equity Group”), a wholly owned subsidiary of the Company. During the third quarter of 2017 the Company recognized a loss of approximately $463,000 as a revised estimate of the final settlement on certain provisions of the asset sale agreement which is reflected in the “Loss (gain) on sale or disposition of assets, net” in the accompanying Condensed Consolidated Statements of Income.