Acquisitions

6 Months Ended

Mar. 31, 2020

ACQUISITIONS

During the six months ended March 31, 2020, the Company acquired the following intangible assets:

Residual Buyouts

From time to time, the Company acquires future commission streams from sales agents in exchange for an upfront cash payment. This results in an increase in overall gross processing volume to the Company. The residual buyouts are treated as asset acquisitions, resulting in recording a residual buyout intangible asset at cost on the date of acquisition. These assets are amortized using a method of amortization that reflects the pattern in which the economic benefits of the intangible asset are expected to be utilized over their estimated useful lives.

During the six months ended March 31, 2020, the Company purchased $1,597 in residual buyouts using a combination of cash on hand and borrowings on the Company's revolving line of credit. The acquired residual buyout intangible assets have a weighted-average amortization period of eight years.

2019 Business Combinations

During the year ended September 30, 2019, the Company completed the acquisitions of unrelated businesses, including Pace Payment Systems, Inc. Certain of the purchase price allocations assigned for these acquisitions were considered preliminary as of September 30, 2019, and are considered preliminary as of March 31, 2020.

Purchase of Pace Payment Systems, Inc.

On May 31, 2019, i3-Holdings Sub, Inc. acquired all of the stock of Pace Payment Systems, Inc. (“Pace”) via a reverse triangular merger involving Pace and a special acquisition subsidiary of i3-Holdings Sub, Inc. The Company acquired Pace to expand its software offerings, primarily in the public sector and education verticals. The total purchase consideration was $56,053, including $52,492 in cash consideration, funded by proceeds from the Company's revolving credit facility, $3,336 of contingent consideration and $225 of restricted shares of Class A common stock in i3 Verticals. Certain of the purchase price allocations assigned for this acquisition are preliminary.

The goodwill associated with the acquisition is not deductible for tax purposes. The acquired merchant relationships intangible asset has an estimated amortization period of fifteen years. The non-compete agreement and trade name have estimated amortization periods of three and five years, respectively. The weighted-average estimated amortization period of all intangibles acquired is fifteen years. The acquired capitalized software has an estimated amortization period of seven years. The acquisition also included deferred tax assets related to net operating losses and Section 163(j) carryforwards and deferred tax liabilities related to intangibles, which are presented as a total net deferred tax asset as of March 31, 2020.

Acquisition-related costs for Pace amounted to approximately $507 and were expensed as incurred.

Certain provisions in the merger agreement provide for additional consideration of up to $20,000 in the aggregate, to be paid based upon achievement of specified financial performance targets, as defined in the purchase agreement, in the 24 months from January 1, 2020 through December 31, 2021. The Company determined the acquisition date fair value of the liability for the contingent consideration based on a discounted cash flow analysis. In each subsequent reporting period, the Company will reassess the current estimates of performance relative to the targets and adjust the contingent liability to its fair value through earnings. See additional disclosures in Note 7.

Other 2019 Business Combinations

The Company completed the acquisitions of other businesses to expand the Company’s software offerings in the public sector vertical market, provide technology that enhances the Company’s Burton Platform and expand the Company's merchant base. Total purchase consideration was $98,887, including $89,191 in revolving credit facility proceeds and $9,696 of contingent consideration. Certain of the purchase price allocations assigned for these acquisitions are preliminary.

For some of these businesses acquired, the goodwill associated with the acquisition is deductible for tax purposes, and for others, the goodwill associated with the acquisition is not deductible for tax purposes. The acquired merchant relationships intangible assets have estimated amortization periods of between thirteen and twenty years. The non-compete agreement and trade names have weighted-average amortization periods of three and five years, respectively. The weighted-average amortization period for all intangibles acquired is sixteen years. The acquired capitalized software has an estimated amortization period of six years.

Acquisition-related costs for these businesses amounted to approximately $1,299 and were expensed as incurred.

Certain provisions in the purchase agreements provide for additional consideration of up to $34,900, in the aggregate, to be paid based upon the achievement of specified financial performance targets, as defined in the

purchase agreements, through no later than September 2021. The Company determined the acquisition date fair values of the liabilities for the contingent consideration based on probability forecasts and discounted cash flow analyses. In each subsequent reporting period, the Company will reassess its current estimates of performance relative to the targets and adjust the contingent liabilities to their fair values through earnings. See additional disclosures in Note 7.

Summary of 2019 Business Combinations

The fair values assigned to certain assets and liabilities assumed, as of the acquisition dates, as adjusted for any purchase price allocation adjustments subsequent to September 30, 2019, were as follows:


	Pace		Other		Total
Cash and cash equivalents	$	108	$	4,453	$	4,561
Accounts receivable	545		4,907		5,452
Settlement assets	—		18		18
Related party receivable	—		—		—
Inventories	45		61		106
Prepaid expenses and other current assets	59		483		542
Property and equipment	527		1,929		2,456
Capitalized software	3,400		9,440		12,840
Acquired merchant relationships	13,400		34,480		47,880
Exclusivity Agreements	—		—		—
Non-compete agreements	60		150		210
Trade name	500		1,540		2,040
Goodwill	35,589		47,480		83,069
Other assets	2,622		2		2,624
Total assets acquired	56,855		104,943		161,798

Accounts payable	722		369		1,091
Accrued expenses and other current liabilities	56		2,284		2,340
Settlement obligations	—		18		18
Deferred revenue, current	24		2,698		2,722
Other long-term liabilities	—		687		687
Net assets acquired	$	56,053	$	98,887	$	154,940