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Business Combinations
3 Months Ended
Mar. 31, 2023
Business Combination and Asset Acquisition [Abstract]  
Business Combinations Business Combinations
The Company completed its acquisition of Rewire (O.S.G) Research and Development Ltd. (“Rewire”) on January 5, 2023 by acquiring all outstanding equity interests of Rewire in exchange for cash and equity consideration, described below. The acquisition of Rewire allows the Company to accelerate its opportunity to differentiate the remittance experience with complementary products, by bringing together its remittance businesses in new geographies, along with a strong team that is culturally aligned with the Company.
The acquisition meets the criteria to be accounted for as a business combination in accordance with ASC 805, Business Combinations (“ASC 805”). This method requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date and that the difference between the fair value of the consideration paid for the acquired entity and the fair value of the net assets acquired be recorded as goodwill, which is not amortized but is tested at least annually for impairment.
Consideration Transferred
The estimated acquisition date fair value of consideration transferred for the acquisition totaled $77.9 million, as follows:
(in thousands)Amount
Cash paid to selling shareholders$56,398 
Equity issued to selling shareholders, including replacement of equity awards attributable to pre-combination services7,216 
Holdback liability to be settled in cash and Company equity11,899 
Effective settlement of pre-existing net receivable owed to the Company2,401 
Total consideration transferred$77,914 
The fair value of equity was determined based on the closing price of the Company’s common stock immediately prior to acquisition, and includes 694,918 shares issued in Company common stock, inclusive of 104,080 shares which are subject to service-based vesting conditions over a two year period. Approximately $0.6 million of these proceeds were accounted for as pre-combination expense, and included within the total consideration transferred noted above, with the remaining $0.9 million to be recognized as post-combination share-based compensation expense over the requisite service period. The equity issued excludes 133,309 shares and restricted stock units held back and not legally issued at acquisition date, as further discussed below.
Approximately $11.9 million of the cash and equity proceeds were held back to satisfy any necessary adjustments, including without limitation, indemnification claims related to general representations and warranties, and any net working capital adjustments. The majority of this holdback is expected to be settled in cash, and the remainder in Company common stock and restricted stock units, which approximated 133,309 shares held back and not legally issued at acquisition date. Such amounts will be settled after a 15-month holdback period, net of any amounts necessary to satisfy all unsatisfied or disputed claims for indemnification and net working capital adjustments. As of the acquisition date, this represented approximately $10.4 million in cash and $1.5 million in equity, as discussed above, issuable at the end of the holdback period in Company common stock, subject to the aforementioned adjustments.
Included in consideration transferred is the settlement of a pre-existing net receivable owed to the Company by Rewire, which was effectively settled and became intercompany arrangements as of the closing of the transaction. Excluding the impact of the outstanding net receivable owed to the Company by Rewire, the Company would have paid $2.4 million more for the business at closing, and therefore the GAAP purchase price reflects an increase in that amount. The settlement of pre-existing relationships between the Company and Rewire did not result in any material gain or loss.
Holdback Liability
The holdback of cash and equity proceeds discussed above was recorded at its acquisition date fair value and is classified as a liability within ‘Other noncurrent liabilities’ on the Company’s Condensed Consolidated Balance Sheets. The portion of the holdback to be settled in Company shares continues to be recorded at its fair value through its settlement date, with changes recorded to earnings. The estimated fair value of the portion of the holdback liability that will be settled in equity uses both observable and unobservable inputs, specifically considering the price of the Company’s common stock, as well as the probability of payout at the end of the holdback period, and is considered a Level 3 measurement, as defined in ASC 820, Fair Value Measurement (“ASC 820”).
Fair Value of Assets Acquired and Liabilities Assumed
The identifiable assets acquired and liabilities assumed of Rewire were recorded at their preliminary fair values as of the acquisition date and consolidated with those of the Company. Assigning fair market values to the assets acquired and liabilities assumed at the date of an acquisition requires the use of significant judgments regarding estimates and assumptions. For the preliminary fair values of the assets acquired and liabilities assumed, the Company predominantly applied the cost and income approaches, including market participant assumptions. The following table summarizes the preliminary allocation of the purchase consideration to the fair value of the assets acquired and liabilities assumed:
(in thousands)Amount
Cash, cash equivalents, and restricted cash$15,465 
Disbursement prefunding6,016 
Customer funds receivable, net3,423 
Prepaid expenses and other assets, net1,084 
Intangible Assets
Trade name1,000 
Customer relationships8,500 
Developed technology12,000 
Goodwill54,989 
Customer liabilities(3,075)
Assumed indebtedness(18,784)
Other liabilities, net(2,704)
Total purchase price$77,914 
The Company is in the process of finalizing the valuation of assets acquired and liabilities assumed of Rewire with respect to fair value of net assets acquired, their estimated useful lives, and the tax impacts of the acquisition. These amounts may be adjusted as management continues to gather and evaluate information about circumstances that existed as of the acquisition date and as the resulting fair values of net assets acquired are finalized. Measurement period adjustments will be recognized prospectively and such adjustments could be significant. The measurement period will not exceed 12 months from the date of acquisition.
Intangible Assets, including Goodwill
The acquired identified intangible assets have preliminary estimated useful lives ranging from three to five years.
The fair value measurement is based on significant inputs not observable in the market and, therefore, represents a Level 3 measurement as defined in ASC 820. The key assumptions in applying the income approach used in valuing the identified intangible assets include forecasted revenue and growth rates for a hypothetical market participant, selected discount rates, as well as migration curves for developed technology.
The excess of the purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill and is primarily attributable to the revenue and cost synergies expected to arise from the acquisition through continued geographic expansion and product differentiation, along with the acquired workforce of Rewire. Goodwill is expected to be deductible for income tax purposes. The acquisition did not change the Company’s one operating segment.
Acquired Receivables
The fair value of the financial assets acquired include “Disbursement prefunding” and “Customer funds receivable, net”, with a fair value of $6.0 million and $3.4 million, respectively, as disclosed above. The Company expects to collect substantially all of these receivables.
Transaction Costs
Transaction costs totaled $1.2 million for the three months ended March 31, 2023. Such costs are primarily related to the Company’s aforementioned acquisition of Rewire. There were no transaction costs incurred for the three months ended March 31, 2022.
Other Disclosures
The results of Rewire have been included within the Condensed Consolidated Financial Statements since the date of the acquisition. Rewire’s “Revenue” and “Net Loss” included within the Condensed Consolidated Financial Statements since the acquisition date was $3.2 million and $(8.5) million, respectively.
Pro forma financial information has not been presented, as revenue and expenses related to the acquisition do not have a material impact on the Company’s unaudited Condensed Consolidated Financial Statements. Had Rewire been acquired on January 1, 2022, the Company's revenue and expenses would not have been materially impacted; however, the Company’s net loss would have increased during 2022. Significant pro forma adjustments include transaction costs and amortization of acquired intangibles, as discussed further above.