Note 14 - Business Combinations

6 Months Ended

Jun. 30, 2022

Notes to Financial Statements

Business Combination Disclosure [Text Block]

14. Business Combinations

On July 20, 2021, the Company completed the Acquisition of NCTIC and NCTG by purchasing 100% of the stock of NCTIC and 100% of the membership interest in NCTG for the Purchase Price. NCTG owns a 50% non-controlling membership interest in TAV, and by virtue thereof, owns 50% of the membership interest in Omega. The 50% non-controlling membership interest in TAV was accounted for under the equity method of accounting.

The purchase price allocation for NCTIC and NCTG is as follows (in thousands):

Cash paid for NCTIC	$	4,453
Cash paid for NCTG		1,010
Total consideration paid.	$	5,463

	NCTIC			NCTG
Cash and cash equivalents	$	4,834		$	9
Accounts receivable		40			-
Deferred tax assets		14			-
Investment in TAV		-			593
Other assets		4			418
Total assets acquired		4,892			1,020
Accrued expenses		168			10
Reinsurance payable		41			-
Escrow liability		4			-
Reserve for claims		209			-
Total liabilities assumed		422			10
Net assets acquired	$	4,470		$	1,010
Bargain purchase gain	$	(17	)	$	-

A bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree is less than the fair value of the identifiable net assets acquired.  The bargain purchase gain was primarily driven by differences in NCTIC’s statutory surplus and GAAP surplus at the date of acquisition.  The Company believes that the Sellers wanted to exit the business relatively quickly and there were a limited number of potential buyers due to factors inherent to the property and casualty market, which resulted in a bargain purchase gain.  The bargain purchase gain was recorded in other income on the Consolidated Statement of Operations during the three months ended September 30, 2021.

On September 1, 2021, the Company acquired the remaining 50% membership interests of TAV for $2.2 million. This acquisition, combined with the July 2021 Acquisition of a 100% membership interest in NCTG, which owns a 50% membership interest in TAV, the Company now is the sole owner of TAV.

The operating results of TAV are included in the title insurance segment.

The final purchase price allocation for TAV at fair value is as follows (in thousands):

Cash paid for remaining 50% of TAV	$	2,200
Fair value of existing equity interest		3,564
Total consideration	$	5,764
Cash and cash equivalents	$	12,044
Accounts receivable		166
Prepaid expenses		76
Fixed assets		216
Total assets acquired		12,502
Accrued expenses		32
Management fee payable		455
Escrow liability		9,293
Payable to affiliate		864
Note payable		545
Total liabilities assumed		11,189
Net assets acquired		1,313
Goodwill	$	4,451

The acquisition date fair value of the Company’s previously held equity interest in TAV was $3.6 million with a fair value primarily estimated through an income approach valuation. The Company recorded a gain of $3.3 million on the fair value remeasurement of our previously held equity interest in TAV on the unaudited consolidated statements of operations for the three and nine months ended September 30, 2021.

The acquisition of the remaining equity interest was accounted for as a step-transaction in accordance with FASB Accounting Standards Codification Topic 805, Business Combinations ("Topic 805"). The Second Purchase Price has been allocated to TAV's assets acquired and liabilities assumed based on our best estimates of the fair values as of the acquisition date. The fair value of assets acquired and liabilities assumed represent a preliminary allocation as our evaluation of facts and circumstances available as of June 30, 2022 is ongoing. Goodwill has been recorded based on the amount that the purchase price exceeds the fair value of the net assets acquired. Goodwill consists primarily of intangible assets that do not qualify for separate recognition.

Pursuant to Topic 805, the financial statements will not be retrospectively adjusted for any provisional amount changes that occur in subsequent periods. Rather, we will recognize any provisional adjustments as we obtain information not available as of the completion of this preliminary fair value calculation as determined within the measurement period. We will also be required to record, in the same period as the financial statements, the effects to any income statement captions, if any, as a result of any change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. We expect to finalize the purchase price allocation as soon as practicable, but no later than one year from the acquisition date.

The following table presents unaudited pro forma financial information as if NCTIC, NCTG, and TAV had been included in the Company’s financial results as of January 1, 2021, through the date of acquisition:

	Three Months		Six Months
	Ended		Ended
	June 30,		June 30,
	2021		2021
Revenues	$	2,084	$	4,090
Net income	$	203	$	815