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ACQUISITIONS
12 Months Ended
Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract]  
ACQUISITIONS Acquisitions
Finxera Acquisition
On September 17, 2021 (the "Closing Date"), the Company completed its acquisition of 100% of the equity interests of Finxera Holdings, Inc. ("Finxera"). Finxera is a provider of deposit account management and licensed money transmission services in the U.S. The acquisition will allow the Company to offer clients turn-key merchant services, payment facilitation, card issuing, automated payables, virtual banking, e-wallet tools, risk management, underwriting and compliance on a single platform.
The transaction was funded with the Company's cash on hand, proceeds from the issuance of the redeemable senior preferred stock and debt, and the issuance of common equity shares to the sellers.
The acquisition was accounted for as a business combination using the acquisition method of accounting, under which the assets acquired and liabilities assumed were recognized at their fair values as of the Closing Date, with the excess of the fair value of consideration transferred over the fair value of the net assets acquired recognized as goodwill. The fair values of the assets acquired and liabilities assumed as of the Closing Date were estimated by management based on the valuation of the Finxera business using the discounted cash flow method and other factors specific to certain assets and liabilities. The preliminary purchase price allocation is set forth in the table below and is expected to be finalized as soon as practicable, but no later than one year from the Closing Date.
(in thousands)
Consideration:
Cash$379,220 
Equity instruments(1)
34,388 
Less: cash and restricted cash acquired(6,598)
Total purchase consideration, net of cash and restricted cash acquired$407,010 
Recognized amounts of assets acquired and liabilities assumed:
Accounts receivable$385 
Prepaid expenses and other current assets5,198 
Current portion of notes receivable784 
Settlement assets and customer account balances498,811 
Property, equipment and software, net712 
Goodwill245,104 
Intangible assets, net(2)
211,400 
Other noncurrent assets955 
Accounts payable and accrued expenses(7,837)
Settlement and customer account obligations(498,811)
Deferred income taxes, net(44,311)
Other noncurrent liabilities(5,380)
Total purchase consideration$407,010 
(1)The fair value of the 7,551,354 shares of PRTH common stock that were issued was determined based on their market price at the time of closing adjusted for an appropriate liquidity discount due to trading restrictions under Securities Rule 144.
(2)The intangible assets acquired consist of $154.9 million for referral partner relationships, $34.3 million for technology, $20.1 million for customer relationships and $2.1 million for money transmission licenses.
Goodwill of $245.1 million arising from the acquisition primarily consists of the expected synergies and other benefits from combining operations. Approximately $8.7 million of the goodwill attributable to the acquisition is expected to be deductible for income tax purposes. The goodwill was allocated 100% to the Company's Enterprise Payments reportable segment.
In 2020, Finxera acquired two businesses for which the purchase price included contingent consideration valued at $6.1 million. The contingent consideration payable is comprised of earnout opportunities equal to 50% of certain revenues earned from the customers assumed in these acquisitions. The associated earnout opportunities are to be measured and paid every six months and expire at various dates through December 31, 2023. As of December 31, 2021, $0.1 million of the $6.1 million of total contingent consideration has been paid to the sellers. At December 31, 2021, there was $6.0 million accrued, of which $1.0 million and $5.0 million was included in accounts payable and accrued expenses and other noncurrent liabilities, respectively, on the Company's Consolidated Balance Sheet.
The Company's Consolidated Financial Statements include the operating results of Finxera from the Closing Date through December 31, 2021, which are reported as part of the Enterprise Payments reportable segment. Revenues and operating income from Finxera during this period were $19.4 million and $4.3 million, respectively.
For the year ended December 31, 2021 we incurred $9.3 million, in acquisition related costs, which primarily consisted of consulting, legal, accounting and valuation expenses. These expenses were recorded in selling, general and administrative expenses in the Company's Consolidated Statements of Operations.
The following unaudited pro forma financial information presents results as if the acquisition occurred on January 1, 2020. The historical consolidated financial information of the Company and Finxera has been adjusted in the pro forma information to give effect to pro forma events that are directly attributable to the transaction and are factually supportable. The unaudited pro forma results do not reflect events that have occurred or may occur after the transaction, including the impact of any synergies expected to result from the acquisition. Accordingly, the unaudited pro forma financial information is not necessarily indicative
of the results of operations as they would have been had the transaction occurred on January 1, 2020, nor is it necessarily an indication of future operating results.
(in thousands, except per share amounts)Years Ended December 31,
20212020
Revenues$561,585 $463,823 
Operating income$21,619 $32,548 
Other Acquisitions
Wholesale Payments, Inc.
On April 28, 2021, a subsidiary of the Company completed its acquisition of certain residual portfolio rights for a purchase price of $42.4 million and $24.8 million of post-closing payments and earn-out payments based on meeting certain attrition thresholds over a three-year period from the date of acquisition. The transaction did not meet the definition of a business, therefore it was accounted for as an asset acquisition under which the cost of the acquisition was allocated to the acquired assets based on relative fair values. As of December 31, 2021, the sellers earned $3.8 million of the $24.8 million, which was paid during the third quarter of 2021, increasing the total purchase price recorded at December 31, 2021 to $46.2 million, which was recorded to residual buyout intangible assets with a seven-year useful life amortized on a straight-line basis. As this is an asset acquisition, additional purchase price is accounted for when payment to the seller becomes probable and is added to the carrying value of the asset. The seller's note payable to the Company of $3.0 million and an advance of $2.0 million outstanding at the time of the purchase was netted against the initial purchase price, resulting in cash of $41.2 million being paid by the Company to the seller, which was funded from cash proceeds from the issuance of the redeemable senior preferred stock and cash on hand.
C&H Financial Services, Inc.
On June 25, 2021, a subsidiary of the Company acquired certain assets and assumed certain related liabilities under an asset purchase agreement. The acquisition was accounted for as a business combination using the acquisition method of accounting. Prior to this acquisition, the business was an ISO partner of the Company where it developed expertise in software-integrated payment services, as well as marketing programs for specific verticals such as automotive and youth sports. This business is reported within the Company's SMB Payments reportable segment. The initial purchase price for the net assets was $35.0 million in cash and a total purchase price of not more than $60.0 million including post-closing payments and earn-out payments based on certain gross profit and revenue achievements over a three-year period from the date of acquisition. The acquisition date fair value of the contingent consideration was $4.7 million, which increased the total purchase price to $39.7 million. The seller's note payable to the Company of $0.5 million at the time of purchase was netted against the initial purchase price, resulting in cash of $34.5 million being paid by the Company to the seller, which was funded from a $30.0 million draw down of the revolving credit facility under the Credit and Guaranty Agreement held by the Company and $4.5 million cash on hand. Transaction costs were not material and were expensed. The preliminary purchase price allocation is set forth in the table below and is expected to be finalized as soon as practicable, but no later than one year from the acquisition date.
(in thousands)
Accounts receivable$214 
Prepaid expenses and other current assets209 
Property, equipment and software, net and other current assets287 
Goodwill13,804 
Intangible assets, net(1)
25,400 
Other noncurrent liabilities(214)
Total purchase price$39,700 
(1)The intangible assets acquired consist of $20.2 million for merchant portfolio intangible assets with a ten-year useful life and $5.2 million for ISO partner relationships with a twelve-year useful life.
The goodwill for the Wholesale Payments, Inc. asset acquisition and the C&H Financial Services, Inc. business combination is deductible by the Company for income tax purposes. Based on their purchase prices and pre-acquisition operating results and assets, these two businesses acquired by the Company in 2021, as described above, did not meet the materiality requirements for pro forma disclosures individually or collectively.
YapStone, Inc.
In March 2019, the Company, through one of its subsidiaries, Priority Real Estate Technology, LLC ("PRET"), acquired certain assets and assumed certain related liabilities from YapStone, Inc. under an asset purchase and contribution agreement. The purchase price for the YapStone net assets was $65.0 million in cash plus a non-controlling interest ("NCI") in PRET issued to YapStone, Inc. with a fair value that was estimated to be approximately $5.7 million. The total purchase price was assigned to customer relationships, except for $1.0 million and $1.2 million which were assigned to a software license agreement and a services agreement, respectively. The $65.0 million of cash was funded from the Company's Senior Credit Facility. PRET is part of the Company's Enterprise Payments reportable segment.
During the third quarter of 2020, substantially all of the YapStone net assets were sold to a third party (see Note 6, Disposal of Business). Approximately $45.1 million of PRET's 2020 earnings through the disposal date, which were primarily composed of the gain recognized on the sale, were attributed and distributed in cash to the NCI during the third quarter of 2020 pursuant to the profit-sharing agreement between the Company and the NCI. At the time of the sale, the NCI was also redeemed in cash for its $5.7 million interest in PRET.
For the year ended December 31, 2019, no earnings of PRET were allocated to the NCI.
Residual Portfolio Rights Acquired
On March 15, 2019, a subsidiary of the Company paid $15.2 million cash to acquire certain residual portfolio rights. Of the $15.2 million, $5.0 million was funded from the term loan under Senior Credit Agreement, $10.0 million was funded from the revolving credit facility under the Senior Credit Agreement, and cash on hand was used to fund the remaining amount. This acquisition became part of the Company's SMB Payments reportable segment. The purchase price was subject to a potential increase of up to $6.4 million in accordance with the terms of the agreement between the Company and the sellers over a three-year period. Additional purchase price is accounted for when payment to the seller becomes probable and is added to the carrying value of the asset and amortization expense is adjusted to reflect the new carrying value at the original purchase date. The first period for determining contingent consideration ended in March 2020, and the Company paid the seller $2.1 million of additional cash consideration, partially offset by an amount owed to the Company by the seller. In 2021, the Company paid the seller an additional $2.1 million for the second period for determining contingent consideration that ended in March 2021, which had been recorded as a contingent consideration liability at December 31, 2020. The remaining $2.1 million will be payable in the first quarter of 2022 if certain criteria are achieved.
Merchant Portfolio Rights and Reseller Agreement
In October 2019, the Company simultaneously entered into two agreements with another entity. These two related agreements assign to the Company certain perpetual rights to a merchant portfolio and form a five-year reseller arrangement whereby the Company will offer and sell to its customer base certain online services to be fulfilled by the other entity. No cash consideration was paid to, or received from, the other entity at execution of either agreement. It was not initially determinable if the Company would have to pay any amount as consideration for the merchant portfolio rights due to the provisions of the related reseller agreement. The Company does not anticipate any net losses under the two contracts. Subsequent cash payments from the Company to the other entity for the merchant portfolio rights are determined based on a combination of: 1) the actual financial performance of the acquired merchant portfolio rights; and 2) actual sales and variable wholesale costs for the online services sold by the Company under the reseller arrangement. Prior to December 31, 2020, amounts paid to the other entity were accounted for as either standard costs of the services sold by the Company under the five-year reseller agreement or consideration for the merchant portfolio rights.
As of December 31, 2020, the Company determined it had accumulated the additional data and historical experience that it deems necessary in order to reasonably estimate an amount of cash that the Company believes it will ultimately have to transfer as remaining consideration for the merchant portfolio rights. Accordingly, at December 31, 2021 and 2020 the Company had accrued approximately $2.4 million and $6.2 million of estimated remaining cash consideration and additional accumulated costs for the merchant portfolio, respectively. At December 31, 2021 and 2020 the Company had recorded aggregate costs, including both actual costs and estimated remaining consideration, totaling $11.1 million. Amortization expense was adjusted to reflect the new carrying value at the original purchase date. As of December 31, 2021 and 2020, accumulated amortization was $5.0 million and $2.8 million, respectively. The merchant portfolio has an estimated remaining life of 2.75 years at December 31, 2021.
The Company will continue to review its estimate of the remaining consideration to be funded and adjust the value of the intangible asset and accrual for its obligation accordingly.