Acquisitions and Dispositions

3 Months Ended

Mar. 31, 2019

2019 Disposition

On March 8, 2019, the Company consummated the sale of Kingsdale, an operating segment with operations in Toronto and New York City, that provides shareholder services. As consideration for the sale, the Company was paid cash plus the assumption of certain liabilities totaling approximately $50 million in the aggregate. The sale resulted in a loss of approximately $3 million, which is included in Other, net within the Unaudited Condensed Consolidated Statement of Operations.

2018 Acquisitions

On September 7, 2018, a subsidiary of the Company purchased 100% interests of OneChocolate Communications Limited and OneChocolate Communications LLC, PR (“OneChocolate”) a digital marketing consultancy headquartered in London, UK, for an aggregate purchase price of $3,231, working capital of $966 and additional deferred acquisition payments estimated present value of $2,146. OneChocolate’s results are reflected in the Allison & Partners operating segment which is included in the Specialist Communications reportable segment which had an immaterial impact on our results.

On July 1, 2018, the Company acquired the remaining 14.87% and 3% of membership interests of Doner Partners, LLC and Source Marketing LLC respectively for an aggregate purchase price of $7,618, comprised of a closing cash payment of $3,279 and additional deferred acquisition payments with an estimated present value of $4,305 as of December 31, 2018. As of the acquisition date, the fair value of the additional interests acquired was $16,361 for Doner Partners LLC. The fair values were measured using a discounted cash flow model. As a result of the transaction, the Company reduced noncontrolling interest by $11,946 and redeemable noncontrolling interest by $933.

On April 2, 2018, the Company purchased 51% of the membership interests of Instrument LLC (“Instrument”), a digital creative agency based in Portland, Oregon, for an aggregate purchase price of $35,591. The acquisition is expected to facilitate the Company’s growth and help to build its portfolio of modern, innovative and digital-first agencies. The purchase price consisted of a cash payment of $28,561 and the issuance of 1,011,561 shares of the Company’s Class A subordinate voting stock with an acquisition date fair value of $7,030. The Company issued these shares in a transaction exempt from the registration requirements of the Securities Act of 1933, as amended, pursuant to Section 4(a)(2) of the Securities Act.

The purchase price allocation for Instrument resulted in tangible assets of $10,304, identifiable intangibles of $23,130, consisting primarily of customer lists and a trade name, and goodwill of $32,776. In addition, the Company has recorded $27,357 as the fair value of noncontrolling interests, which was derived from the Company’s purchase price less a discount related to the noncontrolling parties’ lack of control. The identified assets have a weighted average useful life of approximately six years and will be amortized in a manner represented by the pattern in which the economic benefits of such assets are expected to be realized. The goodwill is tax deductible. Instruments’ results are included in the All Other category from a segment reporting perspective. The Company has a controlling financial interest in Instrument through its majority voting interest, and as such, has aggregated the acquired Partner Firm’s financial data into the Company’s consolidated financial statements. The operating results of Instrument in the current year is not material.

Effective January 1, 2018, the Company acquired the remaining 24.5% ownership interest of Allison & Partners LLC for an aggregate purchase price of $10,023, comprised of a closing cash payment of $300 and additional deferred acquisition payments with an estimated present value at the acquisition date of $9,723. The deferred payments are based on the future financial results of the underlying business from 2017 to 2020 with final payments due in 2021. As of the acquisition date, the fair value of the additional interest acquired was $20,096. The fair value was measured using a discounted cash flow model. As a result of the transaction, the Company reduced redeemable noncontrolling interests by $8,857. The difference between the purchase price and the noncontrolling interest of $1,166 was recorded in additional paid-in capital.

Deferred Acquisition Consideration

Deferred acquisition consideration on the balance sheet consists of deferred obligations related to contingent and fixed purchase price payments, and to a lesser extent, contingent and fixed retention payments tied to continued employment of specific personnel. Contingent deferred acquisition consideration is recorded at the acquisition date fair value and adjusted at each reporting period through operating income, for contingent purchase price payments, net interest expense, and fixed purchase price payments. The Company accounts for retention payments through operating income as stock-based compensation over the required retention period.

The following table presents changes in contingent deferred acquisition consideration, which is measured at fair value on a recurring basis using significant unobservable inputs, and a reconciliation to the amounts reported on the balance sheets as of March 31, 2019 and December 31, 2018.



	March 31,			December 31,
	2019			2018
Beginning Balance of contingent payments	$	82,598		$	119,086
Payments	(275		)	(54,947		)
Redemption value adjustments ⁽¹⁾	(6,834		)	3,512
Additions - acquisitions and step up transactions	—			14,943
Foreign translation adjustment	59			4
Ending balance of contingent payments	$	75,548		$	82,598
Fixed payments	835			1,097
	$	76,383		$	83,695

⁽¹⁾ Redemption value adjustments are fair value changes from the Company’s initial estimates of deferred acquisition payments and stock-based compensation charges relating to acquisition payments that are tied to continued employment. Redemption value adjustments are recorded within cost of services sold and office and general expenses on the unaudited condensed Consolidated Statements of Operations.

The following table presents the impact to the Company’s statement of operations due to the redemption value adjustments for the contingent deferred acquisition consideration:



	Three months ended March 31,
	2019			2018
Income (loss) attributable to fair value adjustments	$	(7,643	)	$	2,586
Stock-based compensation	809			2,361
Redemption value adjustments	$	(6,834	)	$	4,947