ACQUISITIONS

12 Months Ended

Dec. 31, 2021

Business Combination and Asset Acquisition [Abstract]

As discussed in Note 1. Business and Basis of Presentation, the Merger was consummated on September 4, 2019. The Merger was accounted for using the acquisition method of accounting in accordance with ASC 805. We concluded that Cannes is the acquirer of Parent based on Cannes taking control of greater than 50% of the voting shares of Parent. Further, the business combination was effected primarily by transferring cash and Cannes was the entity that transferred cash to the selling shareholders. The acquisition allowed TPG to expand its investments in the healthcare industry, which is a core focus industry for TPG.

Consideration of approximately $702.1 million was exchanged for all of Parent’s outstanding stock and options. Under ASC 805, transaction costs of the acquirer are not included as a component of consideration transferred but are accounted as an expense in the period in which such costs are incurred, or, if related to the issuance of debt, capitalized as debt issuance costs. Acquisition related transaction costs incurred as part of a business combination can include estimated fees related to the issuance of long-term debt, underwriting fees, as well as advisory, legal and accounting fees.

Acquisition related fees of $14.1 million were paid by TPG on behalf of Convey. As a result, these fees have been pushed down and reflected as an expense in the period from Inception to December 31, 2019 (Successor). Debt issuance costs of

$6.1 million, in connection with the arrangement of debt financing to consummate the Merger, have been reported in the balance sheet as a direct deduction of the associated debt.

CHS incurred $23.0 million in transaction costs related to Parent’s advisors and transaction-based bonuses to Parent’s employees, which was included as part of the purchase consideration. Seller transaction expenses of $21.5 million were contingent on the consummation of the Merger and were recognized “on the line”, and, therefore are not reflected in the Predecessor or Successor statement of operations and comprehensive loss. Unrecognized compensation expenses of $4.1 million associated with stock options that vested upon consummation of the Merger and deferred financing costs of $3.1 million associated with the extinguishment of the Predecessor term loan and the revolving credit facility were also recognized “on the line.”

The following table summarizes the purchase consideration transferred in connection with the Merger and consists of the following:


(in thousands)
Cash consideration	$	656,174
Contingent consideration payable to former owners and working capital payable	6,562
Equity rollover	39,327
Total consideration	$	702,063

The fair value of the equity rollover consideration was calculated by valuing each share based on the per share common stock merger consideration.

Contingent consideration of $2.8 million was estimated to be paid to the sellers at the time of the acquisition. The initial fair value of the holdback liability was measured using a probability weighted approach.

The valuation of the assets acquired and liabilities assumed was based on fair values as of September 4, 2019, the closing date of the Merger. The allocation of consideration to the net tangible and intangible assets acquired and liabilities assumed reflect various fair value estimates and analyses, including work performed by third-party valuation specialists.

The following table summarizes the acquisition date fair value of the allocation of the purchase consideration assigned to each major class of assets acquired and liabilities assumed as of September 4, 2019, the closing date of the Merger:


	Preliminary allocation		Measurement period adjustments		Final allocation
(in thousands)
ASSETS ACQUIRED
Cash	$	21,459	$	—	$	21,459
Accounts receivable	37,657		—		37,657
Inventories, net	1,633		—		1,633
Prepaid expenses and other current assets	8,100		—		8,100
Restricted cash	8,423		—		8,423
Property and equipment, net	17,588		—		17,588
Other assets, net	1,149		—		1,149
Total identifiable assets acquired	96,009		—		96,009
Fair value of intangible assets
Tradenames	27,300		—		27,300
Customer relationships	189,000		—		189,000
Technology	47,800		—		47,800
Total fair value of intangible assets acquired	264,100		—		264,100
Goodwill	455,006		200		455,206
Total Assets Acquired	$	815,115	$	200	$	815,315
LIABILITIES ASSUMED
Accounts payable	$	6,123	$	—	$	6,123
Deferred revenue	3,879		—		3,879
Accrued expenses	25,203				25,203
Capital lease obligations	595		—		595
Deferred taxes, net	29,595		200		29,795
Contingent consideration from prior acquisitions	40,371		—		40,371
Other long-term liabilities	7,286		—		7,286
Total Liabilities Assumed	$	113,052	$	200	$	113,252
Total consideration transferred	$	702,063	$	—	$	702,063

Due to a change in our tax estimate we made a measurement period adjustment of $0.2 million for the year ended December 31, 2020.

The preliminary value of net assets acquired and liabilities assumed of $247.1 million were recorded at their fair values. Measurement period adjustments were made which changed the net assets acquired and liabilities assumed to $246.9 million. Finite-lived intangible assets acquired of $264.1 million related to tradenames, customer relationships, and technology are being amortized on a straight-line basis, which best reflects the pattern of usage. We estimated the fair value of the identifiable intangible assets based upon a third-party valuation. The weighted average useful life of tradenames, customer relationships and technology at the time of acquisition was 19.7 years, 11 years and 10 years, respectively.

The tradenames and technology were valued using the relief from royalty method. Under this method a royalty rate is applied to the revenues associated with the respective trade name and technology to capture value associated with use of the intangible assets as if licensed. The resulting royalty savings are then discounted to present value at rates reflective of the risk and return expectations of the cash flows to derive their respective fair values as of the closing date of the Merger.

The customer relationships were valued utilizing the multi-period excess earnings method. Under this method, revenues, operating expenses and other costs were estimated in order to derive cash flows attributable to the customer relationships. The resulting cash flows were then discounted to present value at rates reflective of the risk and return expectations to arrive at the fair value of the customer relationship as of the closing date of the Merger.

The fair value of property and equipment acquired was determined using the cost approach. The market approach was also utilized for assets with active secondary markets.

The fair value of the deferred revenue was estimated based on the costs to satisfy our remaining obligations, plus a reasonable profit considering the mark-up that a third-party market participant would charge to service the deferred revenue.

Contingent consideration from prior acquisitions was fair valued based on a probability weighted assessment.

Goodwill of $455.2 million as of December 31, 2020, represents the excess of cost over the fair value of net tangible assets and finite-lived intangible assets acquired and it is not deductible for income tax purposes. The goodwill is attributable to the general reputation of the business and the collective experience of management and employees. Goodwill of $88.9 million, $190.2 million, $138.2 million and $37.9 million was assigned to the Advanced Plan Administration, Supplemental Benefits Administration, Value Based Payment Assurance and Advisory Services reporting units, respectively, based on expected benefits from the combination as of the Merger date. See Note 7. Intangibles Assets and Goodwill.

Unaudited Supplemental Pro Forma Information

The pro forma results presented below include the effects of the Merger as if it had occurred on January 1, 2019. The pro forma results for the year ended December 31, 2019 includes (i) the additional depreciation and amortization resulting from the adjustments to the value of property and equipment and intangible assets resulting from purchase accounting, (ii) the additional amortization of the estimated adjustment to decrease the assumed deferred revenue obligations to fair value that would have been charged assuming the acquisition occurred on January 1, 2019, together with the consequential tax effects. The pro forma results also include interest expense associated with debt used to fund the acquisitions and adjustments to exclude interest expense from debt extinguished in the Merger. The pro forma results do not include any anticipated synergies or other expected benefits of the acquisitions. The pro forma information does not purport to be indicative of what our results of operations would have been if the Merger had in fact occurred at the beginning of the period presented and is not intended to be a projection of our future results of operations. Transaction expenses are included within the pro forma results.

The unaudited pro forma combined results, which assumes the Merger was completed on January 1, 2019 are as follows for the year ended December 31, 2019:


(in thousands)	Revenue		Net Loss
2019 supplemental pro forma from January 1, 2019 through December 31, 2019	$	220,993	$	(20,815)