Business Acquisitions and Dispositions

Acquisition in 2013

On February 1, 2013, the Company acquired 100% of the outstanding stock of RICC, from subsidiaries of the Kemper Corporation ("Kemper") for $4.8 million. RICC is a property/casualty insurance company domiciled and licensed in California, which the Company intends to use for geographic expansion in the Payment Protection business. RICC had, at the time of purchase, no policies in force. All remaining claim liabilities for previously issued policies are fully reinsured by Kemper's subsidiary, Trinity Universal Insurance Company.

Acquisitions in 2012

On December 31, 2012, the Company acquired a 62.4% ownership interest in Digital Leash, LLC, d/b/a ProtectCELL for $20.0 million, which amount is deemed a Series A Contribution under the provisions of the related agreements. ProtectCELL provides membership plans for the protection of mobile wireless devices and other benefits including data management and identity theft protection. ProtectCELL is one of the leaders in mobile device protection plans and will spearhead Fortegra's efforts to expand its warranty and service contract business in the mobile and wireless device space. ProtectCELL's results are included in the Company's Payment Protection segment. As part of the acquisition, the Company also has an option, commencing after 2014, to acquire the remaining 37.6% ownership interest in ProtectCELL, at a price based on a sliding scale multiple of ProtectCELL's trailing twelve-month EBITDA ("Earnings before interest, taxes, depreciation and amortization"), less the Series A Contributions, multiplied by 37.6%. The option has no expiration, though the owners of the non-controlling interest have the right to defer the option commencement date for one year under certain conditions. The option must be exercised with respect to not less than all of the non-controlling interest, and is accounted for as an embedded derivative within the value of non-controlling interest.

On December 31, 2012, the Company acquired 100% of the outstanding stock ownership of 4Warranty Corporation, a leading warranty and extended service contract administrator with extensive expertise in the furniture, electronics, appliance, lawn and garden, and fitness equipment markets. 4Warranty complements the Company's rapidly expanding warranty business. 4Warranty's results are included in the Company's Payment Protection segment.

On April 24, 2012, the Company acquired a 100% ownership interest in MHA & Associates LLC ("MHA"), for $0.3 million, obtaining the renewal rights of the business and hiring the prior owner to maintain and increase the block of business. MHA's results are included in the Company's Payment Protection segment.

During 2013, the Company received preliminary valuation studies prepared by external valuation experts for identifiable intangible assets, goodwill, deferred revenues, and non-controlling interest for the 2012 acquisitions of ProtectCELL and 4Warranty. The Company has provisionally accepted the results of these studies while continuing to review them in detail. Accordingly, the Consolidated Balance Sheet at December 31, 2012, has been retrospectively adjusted to include the effect of the measurement period adjustments as required under ASC 805, Business Combinations, ("ASC 805"), for ProtectCELL and 4Warranty. Adjustments were recorded to the values of intangible assets and deferred revenues based upon completion of valuation models in the studies, and refinement of assumptions supporting those models, using discounted cash flow, relief from royalty, and/or other analytical techniques as presented in the valuation studies. With respect to ProtectCELL, the preliminary valuations of these balances allowed for a determination of the total value of the enterprise at December 31, 2012. Using this enterprise value, and a break-even analysis to determine the relative attribution of the Company's $20.0 million investment between the common and preferred units acquired, the preliminary valuation study assigned values of $7.9 million and $12.1 million to the acquired common and preferred units, respectively, and a fair value of $4.7 million to the non-controlling interest as shown in the table below. The adjustments noted above result in offsetting adjustments to goodwill. Please see the Consolidated Statement of Stockholders' Equity for the retrospective measurement period adjustment of the non-controlling interest for ProtectCELL, as well as the Notes, "Goodwill," and "Other Intangible Assets," for more information on the retrospective measurement period adjustments made in 2013 for both ProtectCELL and 4Warranty. The ProtectCELL and 4Warranty determinations are preliminary, mainly due to ongoing review of the preliminary studies.

The following table presents the allocation of purchase price recorded for the 2013 acquisition of RICC and the 2012 acquisitions of ProtectCELL and 4Warranty including the effects of the measurement period adjustments recorded in 2013 for the 2012 acquisitions, as discussed above.



	2012						2013
	Acquisitions						Acquisition
	4Warranty			ProtectCELL			RICC
Assets:
Cash and cash equivalents	$	703		$	350		$	1,893
Restricted cash	72			7,438			—
Investments	—			—			2,488
Short-term investments	—			252			—
Accrued investment income	—			—			38
Notes receivable, net	—			6,341			—
Other receivables	357			2,312			—
Reinsurance receivables	—			—			200
Property and equipment, net	61			628			—
Other intangible assets, net	1,870			18,815			375
Other assets	—			1,470			10
Liabilities:
Unpaid claims	—			(176		)	(200		)
Accrued expenses, accounts payable and other liabilities	(310		)	(2,644		)	(9		)
Deferred revenue	(1,260		)	(30,000		)	—
Income taxes payable	(273		)	—			—
Deferred income taxes, net	(259		)	—			—
Net assets acquired	961			4,786			4,795
Non-controlling interest	—			(4,745		)	—
Purchase consideration ^{(1) (2)}	3,625			20,000			4,795
Goodwill	$	2,664		$	19,959		$	—

⁽¹⁾ - The purchase consideration for the 4Warranty acquisition includes $0.3 million of contingent consideration and $0.3 million of hold back reserves, which estimates are unchanged in the current period and are expected to be paid out based on the agreed terms of the Stock Purchase Agreement.

⁽²⁾ - The purchase consideration of $20.0 million for the ProtectCELL acquisition represents the 62.4% ownership interest acquired in the transaction, comprised of 62,400 common units and 20,000 preferred units, preliminarily valued at $7.9 million and $12.1 million respectively.

Disposition in 2013

In June 2013, the Company sold its wholly owned subsidiary Magna for a gross sales price of $3.0 million, less cash held by Magna, transferred in the sale, of $0.8 million. For the nine months ended September 30, 2013, the Company recorded a $0.4 million pre-tax gain on the sale of Magna, which is included on the Consolidated Statements of Income line item, "Gain on sale of subsidiary."