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FAIR VALUE MEASUREMENTS

9 Months Ended

Sep. 30, 2022

FAIR VALUE MEASUREMENTS

FAIR VALUE MEASUREMENTS

6. FAIR VALUE MEASUREMENTS

ASC Topic 820, Fair Value Measurement establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs reflect the assumptions market participants would use in pricing the asset or liability, developed based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s own assumptions about the assumptions market participants would use in pricing the asset or liability, developed based on the best information available in the circumstances.

The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into three broad levels, as follows:

Level 1—Unadjusted price quotations in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Significant unobservable inputs that are not corroborated by market data.

Marketable securities

At September 30, 2022, the fair value of the Company’s investment in a mutual fund was $16,591 which is included in prepaid expenses and other assets in the accompanying unaudited condensed consolidated balance sheets. The fair value was determined using Level 1 inputs.

First Lien Term Loan

The implied fair value of the Company’s First Lien Term Loan (as defined below) based on Level 2 inputs at December 31, 2021 and September 30, 2022 are as follows:


		December 31, 2021						September 30, 2022
		Stated			Fair			Stated			Fair
		Value			Value			Value			Value
First Lien Term Loan - Tranche A		$	1,610,928		$	1,598,846		$	1,598,408		$	1,556,450
First Lien Term Loan - Tranche B			796,374			792,392			790,371			762,708

Derivatives

At December 31, 2021 and September 30, 2022, the fair value of the Company’s $850,000 notional amount interest rate swap agreements was $5,810 and $46,608, respectively, which is included in prepaid expenses and other assets in the accompanying unaudited condensed consolidated balance sheets. The fair value was based on Level 2 inputs which included the relevant interest rate forward curves.

Business acquisitions

For business acquisitions, the Company recognizes the fair value of goodwill and other acquired intangible assets, and estimated contingent consideration at the acquisition date as part of purchase price. This fair value measurement is based on unobservable (Level 3) inputs.

The following table represents changes in the fair value of estimated contingent consideration for business acquisitions for the year ended December 31, 2021 and the nine months ended September 30, 2022:


Balance at January 1, 2021		$	169,670
Additions to estimated contingent consideration			212,074
Payments of contingent consideration			(143,107)
Non-cash changes in fair value of estimated contingent consideration			112,416
Other			(1,026)
Balance at December 31, 2021		$	350,027
Additions to estimated contingent consideration			28,869
Assumed estimated contingent consideration obligation			12,637
Payments of contingent consideration			(116,449)
Non-cash changes in fair value of estimated contingent consideration			(82,450)
Other			(3,479)
Balance at September 30, 2022		$	189,155

Estimated contingent consideration is included in contingent consideration and other liabilities in the accompanying unaudited condensed consolidated balance sheets.

At December 31, 2021 and September 30, 2022, amounts due to sellers in connection with business acquisitions of $114,156 and $124,001, respectively, are included in contingent consideration and other liabilities in the unaudited condensed consolidated balance sheets.

During the year ended December 31, 2021, the Company paid $131,827 in cash and issued $11,280 in Focus LLC common units as contingent consideration associated with business acquisitions. During the nine months ended September 30, 2022, the Company paid $106,751 in cash and issued $9,698 in Focus LLC common units as contingent consideration associated with business acquisitions.

During the nine months ended September 30, 2021 and 2022, the Company paid cash of $3,911 and $8,646, respectively, as contingent consideration associated with asset acquisitions. These amounts are included in cash paid for acquisitions and contingent consideration—net of cash acquired in investing activities in the unaudited condensed consolidated statement of cash flows.

In determining fair value of the estimated contingent consideration, the acquired business’ future performance is estimated using financial projections for the acquired business. These financial projections, as well as alternative scenarios of financial performance, are measured against the performance targets specified in each respective acquisition agreement. In addition, discount rates are established based on the cost of debt and the cost of equity. The Company uses the Monte Carlo Simulation Model to determine the fair value of the Company’s estimated contingent consideration.

The significant unobservable inputs used in the fair value measurement of the Company’s estimated contingent consideration are the forecasted growth rates over the measurement period and discount rates. Significant increases or decreases in the Company’s forecasted growth rates over the measurement period or discount rates would result in a higher or lower fair value measurement.

Inputs used in the fair value measurement of estimated contingent consideration at December 31, 2021 and September 30, 2022 are summarized below:


			Quantitative Information About Level 3
			Fair Value Measurements
Fair Value at			Valuation		Unobservable
December 31, 2021			Techniques		Inputs		Ranges
$	350,027		Monte Carlo Simulation Model		Forecasted growth rates		0.7% - 20.1	%
					Discount rates		9.0% - 15.0	%


			Quantitative Information About Level 3
			Fair Value Measurements
Fair Value at			Valuation		Unobservable
September 30, 2022			Techniques		Inputs		Ranges
$	189,155		Monte Carlo Simulation Model		Forecasted growth rates		(25.8)% - 38.5	%
					Discount rates		12.0% - 19.0	%

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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