Business Combinations (Notes)

12 Months Ended

Dec. 31, 2022

Business Combinations

PetExpert

On November 16, 2022, the Company acquired 100% of voting equity interest in Royal Blue s.r.o., the parent company of PetExpert, a veterinary-centric, managing general agent for pet insurance with operations in the Czech Republic, Slovakia, and Belgium for approximately $12.3 million in net cash. The acquisition provides the Company with a foothold in Europe, allowing for expansion within different countries within the region. Additionally, the acquired technology from PetExpert focuses on the pet space and, along with the acquired personnel, is intended to enable the Company to improve its back-end software to help facilitate growth opportunities. The Company incurred $0.2 million of acquisition-related costs that were recorded in general and administrative expenses.

The acquisition is recorded using the purchase method of accounting in accordance with Accounting Standards Codification (ASC) 805, Business Combinations, which requires that the assets acquired and liabilities assumed to be recorded at their respective fair values at the acquisition date. The excess of the purchase price over the estimated fair values of the net tangible and intangible assets acquired is recorded as goodwill. The application of the purchase method of accounting resulted in the recognition of intangible assets, the estimated fair values of which involved a discounted cash flow model and certain assumptions and estimates, including but not limited to, revenue growth rates and margins, attrition rates, and discount rates. These estimates are inherently uncertain and unanticipated events and circumstances may occur which could affect the accuracy or validity of estimates used in purchase accounting. The purchase price allocation recorded in a business combination may change during the measurement period, which is a period not to exceed one year from the date of acquisition, as additional information about conditions existing at the acquisition date becomes available.

The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed at the acquisition date (in thousands):


	November 16,
	2022
Current assets, net of cash acquired	$	295
Property and equipment and other long-term assets	27
Amortizable intangible assets	5,121
Goodwill	9,541
Current liabilities and short-term loan	(1,677)
Deferred tax liability and other liabilities	(1,056)
Total consideration transferred, net of cash acquired	$	12,251

The Company acquired intangible assets which included developed technologies and customer relationships with an estimated useful life of 5.0 years. The goodwill recognized is attributable primarily to going concern value such as assembled workforce, future technology development, future customers, and expected synergies from incorporating the operations into the Company’s portfolio. It has been assigned to the subscription business segment. None of the goodwill associated with this acquisition is expected to be deductible for income tax purposes.

As of the acquisition date, the Company assumed a credit agreement entered into by PetExpert in 2021 that provides for a revolving line of credit. The maximum credit limit at December 31, 2022 was $0.4 million. To the extent not previously paid, the line of credit is due on May 31, 2023. As of December 31, 2022, PetExpert had $0.4 million debt issued and outstanding under this assumed credit agreement.

Smart Paws

On August 31, 2022, the Company completed an acquisition of 100% of the equity of Smart Paws GmbH (Smart Paws), a managing general agent for pet insurance with operations in Germany and Switzerland, for approximately $2.8 million in net cash. The acquisition of Smart Paws provides the Company with a foothold in Europe, allowing for expansion within different countries within the region. The Company incurred $0.1 million of acquisition related costs that were included in general and administrative expenses during the year ended December 31, 2022.

The Company acquired a definite-lived intangible asset valued at $1.1 million with an estimated useful life of 5.0 years. Goodwill of $2.6 million was recognized as a result of the acquisition and attributable primarily to going concern value such as assembled workforce, future customers, and expected synergies from incorporating the operations into the Company’s portfolio. None of the goodwill associated with this acquisition is expected to be deductible for income tax purposes.

The results of PetExpert and Smart Paws operations have been included in the consolidated financial statements since the acquisition date, but were immaterial to the Company's consolidated financial statements.