5. Acquisitions and Dispositions

Independent Region Acquisitions

RE/MAX, LLC has acquired certain key assets of several Independent Regions, including the franchise agreements issued by the Company permitting the sale of RE/MAX franchises in the corresponding regions as well as the franchise agreements between those Independent Regions and the franchisees. RE/MAX, LLC acquired these assets in order to expand its owned and operated regional franchising operations. Details of these acquisitions are outlined in the tables below.

The Company funded RE/MAX of Georgia, Inc., RE/MAX of Kentucky/Tennessee, Inc., and RE/MAX of Southern Ohio, Inc., collectively (“RE/MAX Regional Services”) by refinancing its 2013 Senior Secured Credit Facility (See Note 9, Debt) and using cash from operations. The Company used cash generated from operations to fund all other Independent Region acquisitions.

RE/MAX of Northern Illinois, Inc.

RE/MAX Regional Services

RE/MAX of New Jersey, Inc.

RE/MAX of Alaska, Inc.

RE/MAX of New York, Inc.

Acquisition date

November 15, 2017

December 15, 2016

December 1, 2016

April 1, 2016

February 22, 2016

Cash consideration (in thousands)

35,720

50,400

45,000

1,500

8,500

Status of accounting for the business combination

Preliminary(a)

Final as of December 31, 2017(b)

Final as of December 31, 2016

Acquisitions occurring during the current reporting period:

Acquisition-related costs (in thousands)(c)

333

Revenue since acquisition date (in thousands)(d)

595

Weighted-average useful life of franchise agreements acquired

12.4

(a)

The preliminary estimated fair value of the assets acquired is subject to adjustments based on the Company’s final assessment of the fair values of the franchise agreements, which is the acquired asset with the highest likelihood of changing upon finalization of the valuation process.

(b)

As of December 31, 2017, the Company finalized its purchase allocations related to the acquisitions of RE/MAX Regional Services and RE/MAX of New Jersey. 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 year ended December 31, 2017 to the consolidated balance sheet to decrease “Goodwill” by $4.2 million with a corresponding increase to “Franchise agreements, net” of $4.2 million. The Company recognized a reduction in depreciation and amortization expense of $0.8 million during the year ended December 31, 2017 in connection with these measurement adjustments.

(c)

Includes transaction and integration costs such as legal, accounting, advisory and consulting fees for the year ended December 31, 2017 that are included in “Selling, operating and administrative expenses” in the accompanying Consolidated Statements of Income.

(d)

Includes the amount of revenue of the acquiree since the acquisition date through the year ended December 31, 2017 that is included in the accompanying Consolidated Statements of Income.

The franchise agreements acquired were valued using an income approach which utilizes level 3 inputs and are being amortized over a weighted-average useful life using the straight-line method.

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 Mortgage Connection, Inc. (“Full House”), a franchisor of mortgage brokerages that created concepts used to develop Motto, for initial cash consideration of $8.0 million. 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 10, Fair Value Measurements.

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


Cash consideration	$	8,000
Contingent purchase consideration (See note 10)		6,300
Total purchase price	$	14,300

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


	RE/MAX of Northern Illinois		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		23,500		30,700		29,700		-		529		5,000		89,429
Non-compete agreement		-		-		-		2,500		-		-		2,500
Other assets		-		-		-		-		-		340		340
Goodwill		12,220		19,700		15,300		11,800		971		3,029		63,020
Other liabilities		-		-		(335)		-		-		-		(335)
Total purchase price	$	35,720	$	50,400	$	45,000	$	14,300	$	1,500	$	8,500	$	155,420

Each of these constitute a business and were accounted for using the fair value acquisition method. The total purchase price for all acquisitions was allocated to the assets acquired based on their estimated fair values. The excess of the total purchase price over the estimated fair value of the identifiable assets acquired was recorded as goodwill. The goodwill recognized for all acquisitions is attributable to expected synergies and projected long-term revenue growth. All of the goodwill recognized is tax deductible.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information reflects the consolidated results of operations of the Company as if the acquisition of RE/MAX of Northern Illinois had occurred on January 1, 2016 and the acquisitions of RE/MAX Regional Services, RE/MAX of New Jersey, RE/MAX of Alaska and RE/MAX of New York had occurred on January 1, 2015. 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.


	Year Ended December 31,
	2017		2016		2015
	(in thousands, except per share amounts)
Total revenue	$	199,769	$	192,594	$	189,397
Net income attributable to RE/MAX Holdings, Inc. (a)	$	13,035	$	23,533	$	16,746
Basic earnings per common share	$	0.74	$	1.33	$	1.32
Diluted earnings per common share	$	0.74	$	1.33	$	1.31

(a)

Year ended December 31, 2016 includes the net impact of $1.0 million in professional fees and debt extinguishment costs incurred related to the amendment of the Company’s credit facility. See Note 9, Debt for a discussion of the credit facility.

Dispositions

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. The Company recognized a gain on the sale of the assets of approximately $2.8 million during the fourth quarter of 2015, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the accompanying 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, broker fees and franchise sales revenue. During the third quarter of 2017, the Company recognized a loss of approximately $0.5 million 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 Consolidated Statements of Income.

RB2B, LLC d/b/a RE/MAX 100

On April 10, 2015, the Company sold certain operating assets and liabilities related to six owned brokerage offices located in the U.S., of RB2B, LLC d/b/a RE/MAX 100 (“RE/MAX 100”), a wholly owned subsidiary of the Company. The Company recognized a gain on the sale of the assets and the liabilities transferred of $0.6 million during the second quarter of 2015, which is reflected in “Loss (gain) on sale or disposition of assets, net” in the accompanying 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, broker fees and franchise sales revenue.