Business Combinations

12 Months Ended

Dec. 31, 2021

3. BUSINESS COMBINATION

On December 31, 2020, Ambac completed the acquisition of 80% of the membership interests of Xchange for a purchase price of $81 in cash. The acquisition was accounted for as a business combination and advances Ambac's strategy of expanding into the MGU and MGA sector. All amounts recorded at the time of acquisition are final and no subsequent adjustments were made within the permitted measurement period as defined by ASC 805.

The following table summarizes the consideration paid for Xchange and the estimated fair values of the aggregate assets and liabilities acquired, as well as the fair value of the noncontrolling interest, at the acquisition date:


	Fair Value
Cash	$	2
Restricted cash	4
Intangible assets	36
Goodwill	46
Other assets	8
Total assets acquired	$	96
Other liabilities	8
Total liabilities assumed	8
Less: Redeemable noncontrolling interest	7
Total consideration	$	81

Goodwill was recorded to reflect the excess purchase consideration over net assets acquired and primarily consists of the future economic benefits that we expect to receive as a result

of the acquisition, driven by the value of Xchange's potential future distribution and carrier relationships, and synergies with other Ambac business operations. Tax deductible goodwill totaled $65, of which $4 was deducted in 2021.

The fair values assigned to tangible and identifiable intangible assets acquired and liabilities assumed were based on management’s estimates and assumptions at the time of acquisition.

The fair value of the redeemable non-controlling interest of $7 on the acquisition date was estimated based on the non-controlling interest’s respective share of Xchange's enterprise value, adjusted for the value of Ambac's call option to purchase, and the minority owners' put option to sell to Ambac, respectively, the remaining 20% membership interests in Xchange. Please refer to the Noncontrolling Interests section of Note 2. Basis of Presentation and Significant Accounting Policies, for further information regarding the terms of the call and put option, as well as the redeemable noncontrolling interest balance sheet classification.

The following table sets forth the estimated fair values of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition.


	Fair Value		Weighted Average Remaining Useful Life - Years
Distribution relationships	$	33	15.0
Non-compete agreements	1		5.0
Trade name	1		8.0


Total	$	36

The distribution relationships intangible represents existing relationships Xchange maintains with a variety of brokers and distributors across its product lines. It excludes the value of potential future distribution relationships that may be developed, which is included in goodwill. The non-compete agreements intangible relates to agreements entered into with certain key management personnel of Xchange. The trade name intangible

represents the rights to the Xchange Group brand name which is well known in the marketplace Xchange competes in.

The overall weighted average useful life of the identified amortizable intangible assets acquired is fourteen years.

Because the acquisition occurred on last day of the reporting period, there were no revenues or earnings of Xchange included in Ambac's Consolidated Statements of Comprehensive Income for the period ended December 31, 2020.

As of December 31, 2020, pro forma information related to the acquisition was not been presented as the impact was not material to the Company’s financial results.