Business Combinations

6 Months Ended

Jun. 30, 2024

Business Combination, Asset Acquisition, and Joint Venture Formation [Abstract]

Legacy Spruce Power

On September 9, 2022 (the “Acquisition Date”), the Company acquired Spruce Holding Company 1 LLC, Spruce Holding Company 2 LLC, Spruce Holding Company 3 LLC, and Spruce Manager LLC (collectively and together with their subsidiaries, “Legacy Spruce Power”) for $32.6 million, which consisted of cash payments of $61.8 million less cash and restricted cash acquired of $29.2 million. Management evaluated which entity should be considered the accounting acquirer in the transaction by giving consideration to the form of consideration transferred, the composition of the equity holders, the composition of voting rights of the Board of Directors, continuity of management structure, and size of the respective organizations. Based on the evaluation of the applicable factors, management noted that all factors, with the exception of the relative size of organization, were indicators that the Company was the acquiring entity resulting in management’s conclusion that for accounting purposes, the Company acquired Legacy Spruce Power.

The acquisition was accounted for as a business combination. The Company allocated the Legacy Spruce Power purchase price to tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values as of the Acquisition Date. The excess of the purchase price over those fair values was recorded as goodwill.

The Company’s evaluations of the facts and circumstances available as of the Acquisition Date, to assign fair values to assets acquired and liabilities assumed, remained ongoing subsequent to the Acquisition Date. As the Company completed further analysis of assets including solar systems, intangible assets, as well as noncontrolling interests and non-recourse debt, additional information on the assets acquired and liabilities assumed became available. Changes in information related to the value of net assets acquired changed the amount of the purchase price initially assigned to goodwill, and as a result, the fair values set forth below were subject to adjustments as additional information was obtained and valuations completed. These provisional adjustments were recognized during the reporting period in which the adjustments were determined. The Company has finalized its purchase price allocation as of September 8, 2023.

Accounting for business combinations requires management to make significant estimates and assumptions, especially at the Acquisition Date, including the Company’s estimates of the fair value of solar systems, production based incentives,

solar renewable energy agreements, non-controlling interest, trade name and non-recourse debt, where applicable. The Company believes the assumptions and estimates are based on information obtained from the management of the acquired companies and are inherently uncertain. Critical estimates in valuing solar systems under the income approach include future expected cash flows and discount rate. Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results.

The following table summarizes the purchase price allocation of the fair value of assets acquired and liabilities assumed in the acquisition of Legacy Spruce Power, as adjusted, during the measurement period:


(Amounts in thousands)	Initial Purchase Price Allocation		Measurement Period Adjustments		Updated Purchase Price Allocation
Total purchase consideration:
Cash, net of cash acquired, and restricted cash	$	32,585	$	—	$	32,585
Allocation of consideration to assets acquired and liabilities assumed:
Accounts receivable, net	10,995		—		10,995
Prepaid expenses and other current assets	6,768		(2,405)		4,363
Solar energy systems	406,298		89,268		495,566
Other property and equipment	337		—		337
Intangible assets	—		11,980		11,980
Interest rate swap assets	26,698		—		26,698
Right-of-use asset	3,279		(328)		2,951
Other assets	358		(102)		256
Goodwill	158,636		(129,879)		28,757
Accounts payable	(2,620)		(22)		(2,642)
Unfavorable solar renewable energy agreements	—		(10,500)		(10,500)
Accrued expenses	(13,061)		(241)		(13,302)
Lease liability	(3,382)		42		(3,340)
Long-term debt	(510,002)		2,772		(507,230)
Other liabilities	(335)		292		(43)
Redeemable noncontrolling interests and noncontrolling interests	(51,384)		39,123		(12,261)
Total assets acquired and liabilities assumed	$	32,585	$	—	$	32,585

As reflected in the preceding table, as a result of third party valuation reports received in the first quarter of 2023, the Company adjusted solar energy systems and intangible assets with corresponding changes to goodwill. In the first quarter of 2023, due to a change in the provisional amounts assigned to intangible assets and solar energy systems, the Company recognized $0.4 million of revenue, $1.9 million of depreciation expense and $0.4 million of trade name amortization, of which $0.5 million of revenue, $0.9 million of depreciation expense and $0.3 million of trade name amortization related to the previous year.

During the first quarter of 2023, the Company adjusted the fair value of its noncontrolling interest and its redeemable noncontrolling interest in the Company's financials, which resulted in related downward revision of $5.5 million and upward revision of $0.2 million, respectively. Additional paid in capital was also downward revised by $1.8 million, which included the fair value adjustment associated with the purchase of 100% of the membership interests in Ampere Solar Owner IV, LLC, ORE F5A HoldCo, LLC, ORE F6 HoldCo, LLC, RPV Fund 11 LLC and RPV Fund 13 LLC, Sunserve Residential Solar I, LLC's and Level Solar Fund III, LLC in 2022.

The gross intangibles acquired are amortized over their respective estimated useful lives as follows:


(Amounts in thousands)	Asset		Liability		Estimated Life (in years)
Solar renewable energy agreements	$	340	$	10,500	3 to 6
Performance based incentives agreements	3,240		—		13
Trade name	8,400		—		30
Total intangibles acquired	$	11,980	$	10,500

The weighted-average useful life of the intangibles identified above is approximately 16 years, which approximates the period over which the Company expects to gain the estimated economic benefits.

Goodwill represents the excess of the purchase consideration over the estimated fair value of the net assets acquired. Goodwill is primarily attributable to the Company's ability to leverage and use its existing capital and access to capital markets along with Legacy Spruce Power's established operations and mergers and acquisition capabilities to grow the Spruce Power business.