Note 4 - Acquisitions

12 Months Ended

Dec. 31, 2024

Notes to Financial Statements

Business Combination Disclosure [Text Block]

4. Acquisitions

2024 acquisitions:

The Company completed eight acquisitions during the year, two in the FirstService Residential segment and six in the FirstService Brands segment. In the FirstService Residential segment, the Company acquired two property management firms operating in Tampa, Florida and San Francisco, California, respectively. Within the FirstService Brands segment, the Company acquired an independent restoration company located in Atlanta, Georgia, as well as two fire protection companies operating in Birmingham, Alabama and Asheboro, North Carolina, respectively. Also, within the FirstService Brands segment, the Company acquired three commercial roofing companies headquartered in Fort Myers, Florida, Malabar, Florida, and Denver, Colorado, respectively.

Details of these acquisitions are as follows: 

	Aggregate
	Acquisitions
Accounts receivable	$	61,987
Other current assets		25,965
Non-current assets		12,686
Accounts payable		(19,013	)
Accrued liabilities		(25,282	)
Other current liabilities		(19,524	)
Non-current liabilities		(1,385	)
Deferred tax liabilities		(34,749	)
Redeemable non-controlling interest		(95,143	)
	$	(94,458	)
Cash consideration, net of cash acquired of $27,412	$	212,246
Acquisition date fair value of contingent consideration		52,802
Total purchase consideration	$	265,048
Acquired intangible assets (note 9)	$	156,522
Goodwill	$	202,984

Acquisition-related items included both transaction costs and contingent acquisition consideration fair value adjustments. Acquisition-related transaction costs for the year ended December 31, 2024 totaled $5,621 (2023 - $5,151). Also included in acquisition-related items was a reversal of $20,023 related to contingent acquisition consideration fair value adjustments (2023 - increase of $16,366).

The purchase price allocations for certain transactions completed in the last twelve months are not yet finalized, pending final determination of the fair value of assets acquired, the corresponding deferred tax liabilities, and final working capital adjustments. The acquisitions referred to above were accounted for by the purchase method of accounting for business combinations. Accordingly, the accompanying consolidated statements of earnings do not include any revenues or expenses related to these acquisitions prior to their respective closing dates. There have been no material changes to the estimated purchase price allocations that were finalized throughout the year ended December 31, 2024.

The amount of revenues and earnings contributed from the date of acquisition and included in the Company’s consolidated results for the year ended December 31, 2024, and the supplemental pro forma revenues and earnings of the combined entity had the acquisition date been January 1, 2023, are as follows:

	Revenues		Net earnings
Actual from acquired entities for 2024	$	182,065	$	18,288
Supplemental pro forma for 2024 (unaudited)		5,367,848		204,129
Supplemental pro forma for 2023 (unaudited)		5,126,900		218,921

Supplemental pro forma results were adjusted for non-recurring items.

2023 acquisitions:

The Company completed twelve acquisitions in 2023, three in the FirstService Residential segment and nine in the FirstService Brands segment. In the FirstService Residential segment, the Company acquired three property management firms operating in New York City, Toronto, Canada, and San Ramon, California, respectively. Within the FirstService Brands segment, the Company acquired three Paul Davis franchises, headquartered in Houston, Texas, Denver, Colorado, and Boise, Idaho, respectively. The Company also acquired a fire protection company, located in Houston, Texas, a California Closets franchise operating in Reno, Nevada, two independent restoration companies located in Nashville, Tennessee and Cincinnati, Ohio, respectively, as well as a property services business in Orange County, California. On December 18th, the Company announced the acquisition of Roofing Corp of America, a commercial roofing company headquartered in Atlanta, Georgia and operating in 11 U.S. states spanning the Sun Belt, Mid-Atlantic, Midwest and West regions.

Details of these acquisitions are as follows: 

	Roofing Corp			All other
	of America			acquisitions			Total
Accounts receivable	$	83,943		$	27,919		$	111,862
Other current assets		26,362			5,089			31,451
Non-current assets		22,871			6,581			29,452
Accounts payable		(30,531	)		(13,826	)		(44,357	)
Accrued liabilities		(14,171	)		(4,592	)		(18,763	)
Other current liabilities		(13,364	)		(5,507	)		(18,871	)
Non-current liabilities		(5,491	)		(3,378	)		(8,869	)
Deferred tax liabilities		(5,062	)		(14,243	)		(19,305	)
Redeemable non-controlling interest		(46,255	)		(17,604	)		(63,859	)
	$	18,302		$	(19,561	)	$	(1,259	)
Cash consideration	$	445,160		$	146,265	(1)	$	591,425
Less: cash acquired		(19,883	)		(9,735	)		(29,618	)
Acquisition date fair value of contingent consideration		21,902			10,669			32,571
Total purchase consideration	$	447,179		$	147,199		$	594,378
Acquired intangible assets	$	234,770	(2)	$	71,121		$	305,891
Goodwill	$	194,107		$	95,639		$	289,746

(1) Included in the other amount is $14,625 paid in escrow just prior to December 31, 2022.

(2) Intangible assets for Roofing Corp include $212,890 of customer relationships and $21,880 of trademarks.

In all years presented, the fair values of non-controlling interests for all acquisitions were determined using an income approach with reference to a discounted cash flow model using the same assumptions implied in determining the purchase consideration.

The purchase price allocations of all acquisitions resulted in the recognition of goodwill. The primary factors contributing to goodwill are assembled workforces, synergies with existing operations and future growth prospects. For certain acquisitions completed during the year ended December 31, 2024, goodwill in the amount of $63,397 is deductible for income tax purposes (2023 - $160,831).

The determination of fair values of assets acquired and liabilities assumed in business combinations required the use of estimates and judgement by management, particularly in determining fair values of intangible assets acquired. Intangible assets acquired at fair value on the date of acquisition are recorded using the income approach on an individual asset basis. The assumptions used in estimating the fair values of intangible assets include future EBITDA margins, revenue growth rates, revenue attributable to returning customers, expected attrition rates of acquired customer relationships and the discount rates.

The Company typically structures its business acquisitions to include contingent consideration. Vendors, at the time of acquisition, are entitled to receive a contingent consideration payment if the acquired businesses achieve specified earnings levels during the one- to two-year periods following the dates of acquisition. The ultimate amount of payment is determined based on a formula, the key inputs to which are (i) a contractually agreed maximum payment; (ii) a contractually specified earnings level and (iii) the actual earnings for the contingency period. If the acquired business does not achieve the specified earnings level, the maximum payment is reduced for any shortfall, potentially to nil.

The fair value of the contingent consideration liability recorded on the consolidated balance sheet as at December 31, 2024 was $67,248 (see note 18). The estimated range of outcomes (undiscounted) for these contingent consideration arrangements is determined based on the formula price and the likelihood of achieving specified earnings levels over the contingency period, and ranges from $57,939 to a maximum of $68,163. These contingencies will expire during the period extending to October 2026. During the year ended December 31, 2024, $29,404 was paid with reference to such contingent consideration (2023 - $20,136).