Business Combinations and Disposals

12 Months Ended

Dec. 31, 2021

Business Combinations and Disposals.

Business Combinations and Disposals

12. Business Combinations and Disposals

During 2021, 2020 and 2019, the Company completed several business combination transactions. The purpose of each of the acquisitions were to expand the scope and nature of the Company’s product and service offerings, obtain new customer acquisition channels, add additional team members with important skillsets, and realize synergies. The aggregate transaction costs associated with these transactions were $5.4 million, $0.2 million and $0.1 million during 2021, 2020 and 2019, respectively, and are included in general and administrative expenses on the consolidated statements of operations. The results of operations for each acquisition are included in the Company’s consolidated financial statements from the date of acquisition onwards.

The acquisitions are included in the Company’s consolidated financial statements as of the date of the acquisition. The fair values assigned to tangible and intangible assets acquired and liabilities assumed are based on management’s estimates and assumptions and may be subject to change as additional information is received. The primary areas that remain preliminary relate to the fair values of intangible assets acquired, certain tangible assets and liabilities acquired, legal and other contingencies as of the acquisition date, income and non-income-based taxes and residual goodwill. The Company expects to finalize the valuation as soon as practicable, but not later than one year from the acquisition date.

2021 Acquisitions

The following table summarizes the total consideration and the preliminary estimated fair value of the assets acquired and liabilities assumed for business combinations made by the Company during 2021:

	Weighted Average Useful Life (in years)	V12 Data		HOA		Rynoh		AHP		Floify		Other Acquisitions		Total
Purchase consideration:
Cash		$	20,196	$	84,370	$	32,302	$	43,750	$	75,959	$	27,121	$	283,698
Issuance of common stock			—		22,773		—		—		9,908		3,026		35,707
Holdback liabilities and amounts in escrow			150		1,000		3,500		2,500		900		1,775		9,825
Contingent consideration - equity-classified			—		6,685		—		—		—		—		6,685
Contingent consideration - liability-classified			1,410		—		—		—		8,632		327		10,369
Total purchase consideration:		$	21,756	$	114,828	$	35,802	$	46,250	$	95,399	$	32,249	$	346,284
Assets:
Cash, cash equivalents and restricted cash		$	1,035	$	17,766	$	408	$	5,078	$	1,508	$	1,473	$	27,268
Current assets			4,939		235,669		932		8,221		221		1,795		251,777
Property and equipment			996		615		334		17		87		80		2,129
Operating lease right-of-use assets			1,383		1,258		159		913		731		445		4,889
Intangible assets:
Customer relationships	9.0		1,650		16,700		12,700		—		7,000		10,320		48,370
Acquired technology	4.0		3,525		—		2,800		—		28,300		1,340		35,965
Trademarks and tradenames	12.0		1,225		12,200		900		700		6,025		650		21,700
Non-competition agreements	2.0		40		—		90		—		40		55		225
Value of business acquired	1.0		—		400		—		—		—		—		400
Renewal rights	8.0		—		7,692		—		2,042		—		—		9,734
Trademarks and tradenames	Indefinite		—		—		—		—		—		4,750		4,750
Insurance licenses	Indefinite		—		4,960		—		—		—		—		4,960
Goodwill			16,708		45,370		22,051		45,681		53,056		14,499		197,365
Other non-current assets			—		55,165		—		25		—		3		55,193
Total assets acquired			31,501		397,795		40,374		62,677		96,968		35,410		664,725

Current liabilities		(6,871)		(269,460)		(517)		(15,487)		(1,014)		(2,485)		(295,834)
Operating lease liabilities, non-current		(848)		(898)		(72)		(685)		(555)		(204)		(3,262)
Long term liabilities		(2,026)		(7,434)		—		(79)		—		(46)		(9,585)
Deferred tax liabilities, net		—		(5,175)		(3,983)		(176)		—		(426)		(9,760)
Net assets acquired	$	21,756	$	114,828	$	35,802	$	46,250	$	95,399	$	32,249	$	346,284

January 12, 2021 Acquisition of V12 Data

On January 12, 2021, Porch acquired V12 Data, an omnichannel marketing platform. The purpose of the acquisition is to expand the scope and nature of Porch’s service offerings, add additional team members with important skillsets, and realize synergies. Porch acquired V12 Data for $20.3 million cash with an additional $1.4 million as contingent consideration. The contingent consideration is based on the achievement of certain Revenue and EBITDA milestones over the two succeeding years and is paid in cash or common stock at Porch’s discretion. The consideration was paid to the sellers in exchange for net assets of $21.8 million. Goodwill is expected to be deductible for tax purposes. Acquisition-related costs of $0.8 million are included in general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2021.

The following table summarizes the fair value of the intangible assets of V12 Data as of the date of the acquisition:

			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Customer relationships	$	1,650	10
Acquired technology		3,525	4
Trademarks and tradenames		1,225	15
Non-competition agreements		40	2
	$	6,440

The weighted-average amortization period for the acquired intangible assets is 7.6 years.

The estimated fair value of the customer relationships intangible asset was calculated through the income approach using the multi-period excess earnings methodology. The estimated fair value of the trademarks and tradenames as well as acquired technology intangible assets were calculated through the income approach using the relief from royalty methodology. The estimated fair value of the non-competition agreement is derived using the with and without method over the contractual term of the agreement.

April 5, 2021 Acquisition of HOA

On April 5, 2021, Porch acquired HOA. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and operate as a full service insurance carrier in 15 states. Total consideration related to this transaction included $114.8 million, consisting of $84.1 million in cash, $22.8 million in Porch common stock, and acquisition hold backs and contingent consideration of $7.7 million. An additional $0.3 million related to the final working capital adjustment was paid to the sellers in the third quarter of 2021. Goodwill is not expected to be deductible for tax purposes. Acquisition-related costs of $1.9 million were primarily for legal and due-diligence related fees and are included in general and administrative expenses for the year ended December 31, 2021.

The following table summarizes the fair value of the intangible assets of HOA as of the date of the acquisition:

			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Customer relationships	$	16,700	10
Trademarks and tradenames		12,200	10
Business acquired		400	1
Renewal rights		7,692	8
Insurance licenses		4,960	Indefinite
	$	41,952

The weighted-average amortization period for the acquired intangible assets is 9.5 years.

The fair value of customer relationships was estimated through the income approach using the multi-period excess earnings methodology. The fair value of trade name and trademarks was estimated through the income approach using the relief from royalty methodology. The business acquired was valued using the income approach based on estimates of expected future losses and expenses associated with the policies that were in-force as of the closing date of the transaction compared to the future premium remaining to be earned. Renewal rights asset was estimated through the income approach based on premium forecast and cash flows from the renewal policies modeled over the life of the renewals. The insurance licenses were valued using the market approach based on arms-length transactions in which certificate authority companies with licenses were purchased.

May 20, 2021 Acquisition of Rynoh

On May 20, 2021, Porch acquired Segin Systems, Inc. (“Rynoh”), a software and data analytics company that supports financial management and fraud prevention primarily for the title and real estate industries. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies. Total consideration related to this transaction includes $35.8 million, consisting of $32.3 million in cash paid at closing, and acquisition hold backs of $3.5 million. Goodwill is not expected to be deductible for tax purposes. Acquisition-related costs of $0.2 million were primarily for legal and due-diligence related fees and are included in general and administrative expenses for the year ended December 31, 2021.

The following table summarizes the fair value of the intangible assets of Rynoh as of the date of the acquisition:

			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Customer relationships	$	12,700	10
Acquired technology		2,800	7
Trademarks and tradenames		900	20
Non-competition agreements		90	1
	$	16,490

The weighted-average amortization period for the acquired intangible assets is 10.0 years.

The fair value of customer relationships was estimated through the income approach using the multi-period excess earnings methodology. The fair value of trade name and trademarks, as well as acquired technology was estimated

through the income approach using the relief from royalty methodology. The fair value of the non-competition agreement is derived using the with and without method over the contractual term of the agreement.

September 9, 2021 Acquisition of AHP

On September 9, 2021, Porch acquired AHP, a company providing home warranty policies. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies. Total consideration related to this transaction includes $46.3 million, consisting of $43.8 million in cash paid at closing, and acquisition hold backs of $2.5 million. Acquisition-related costs of $0.5 million are included in general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2021.

The following table summarizes the fair value of the intangible assets of AHP as of the date of the acquisition:

			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Renewal rights	$	2,042	6
Trademarks and tradenames		700	10
	$	2,742

The weighted-average amortization period for the acquired intangible assets is 7.0 years.

Renewal rights asset was estimated through the income approach based on forecast and cash flows from the renewal policies modeled over the life of the renewals. The fair value of trade name and trademarks was estimated through the income approach using the relief from royalty methodology.

October 27, 2021 Acquisition of Floify

On October 27, 2021, Porch acquired Floify, a company providing digital mortgage automation and point-of-sale software for mortgage companies and loan officers. The purpose of the acquisition is to expand the scope and nature of Porch’s product offerings, add additional team members with important skillsets, and realize synergies. Total consideration related to this transaction includes $95.4 million, consisting of $76.0 million in cash, $9.9 million of Porch common stock, $0.9 million in acquisition hold backs and a guarantee that the Porch common stock will double in value by the end of 2024 with respect to any such Porch shares retained by the sellers throughout the period. The guarantee requires Porch to provide additional shares of common stock or cash to sellers if the stock does not double in value. The value of the guarantee at acquisition date was estimated to be $8.6 million. Acquisition-related costs of $0.4 million are included in general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2021.

The following table summarizes the fair value of the intangible assets of Floify as of the date of the acquisition:

			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Customer relationships	$	7,000	4
Acquired technology		28,300	4
Trademarks and tradenames		6,025	15
Non-competition agreements		40	3
	$	41,365

The weighted-average amortization period for the acquired intangible assets is 5.6 years.

The fair value of customer relationships and non-competition agreement, was estimated through the with-and-without method based on a comparison of the prospective revenues or expenses for the business with and without these intangible assets in place. The fair value of trade name and trademarks, was estimated through the income approach using the relief from royalty methodology. The fair value of the acquired technology was estimated through the multi-period excess earnings method.

Revenue from these five acquisitions included in the Company’s consolidated statements of operations through December 31, 2021 is $79.6 million. Net loss included in the Company’s consolidated statements of operations from these acquisitions through December 31, 2021 is $1.8 million.

Unaudited Pro Forma Consolidated Financial Information

The following table summarizes the estimated unaudited pro forma consolidated financial information of the Company as if the acquisitions deemed significant under ASC 805 – Business Combinations, which were V12 Data, HOA, Rynoh and Floify had occurred on January 1, 2020:

	Year ended
		December 31,
	2021		2020
Revenue	$	215,769	$	148,771
Net loss	$	(112,239)	$	(61,253)

Other Acquisitions

During 2021, the Company completed other acquisitions which were not individually material to the consolidated financial statements. The purpose of the acquisitions was to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies. The transaction costs associated with these acquisitions were $1.6 million and are included in general and administrative expenses on the consolidated statements of operations for the year ended December 31, 2021. Goodwill of $3.5 million is not expected to be deductible for tax purposes, while goodwill of $11.0 million is expected to be deductible for tax purposes.

2020 Acquisitions and Disposals

The following table summarizes the total consideration and the estimated fair value of the assets acquired and liabilities assumed for business combinations made by the Company during 2020:

	Weighted Average Useful Life (in years)	July 23, 2020 Acquisition		iRoofing		Other Acquisitions		Total
Purchase consideration:
Cash		$	2,000	$	6,003	$	325	$	8,328
Issuance of common stock			1,790		4,711		358		6,859
Deferred acquisition consideration			—		—		80		80
Notes payable			—		—		607		607
Contingent consideration			—		1,749		—		1,749
Total purchase consideration:		$	3,790	$	12,463	$	1,370	$	17,623
Assets:
Cash and cash equivalents		$	382	$	119	$	36	$	537
Current assets			554		212		7		773
Property and equipment			212		44		2		258
Intangible assets:
Customer relationships	5.0		740		2,400		—		3,140
Acquired technology	9.0		470		3,700		300		4,470
Trademarks and tradenames	13.0		670		600		240		1,510
Non-competition agreements	2.0		70		155		—		225
Goodwill			1,576		7,242		1,358		10,176
Total assets acquired			4,674		14,472		1,943		21,089
Current liabilities			(884)		(322)		(527)		(1,733)
Deferred tax liabilities, net			—		(1,687)		(46)		(1,733)
Net assets acquired		$	3,790	$	12,463	$	1,370	$	17,623

July 23, 2020 Acquisition

On July 23, 2020, the Company acquired a moving services technology company. The purpose of the acquisition was to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies. We expect $1.6 million of acquired goodwill to be deductible for income tax purposes.

December 31, 2020 Acquisition (“iRoofing”)

On December 31, 2020, the Company acquired iRoofing LLC, a roofing software company. The purpose of the acquisition was to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies. As part of the consideration, 300,000 shares of commons stock issued have a guarantee of $20.00 per share. The contingent consideration would equal approximately 123,000 additional shares of common stock at the time of the acquisition. The goodwill associated with the acquisition is not expected to be deductible for income tax purposes.

Other Acquisitions

In the third quarter of 2020, the Company completed two other acquisitions that are not material to the consolidated financial statements. The purpose of these acquisitions was to expand the scope and nature of the Company’s service offerings, add additional team members with important skillsets, and realize synergies. The transaction costs associated with this acquisition were trivial. We expect $0.2 millions of acquired goodwill for one of the acquisitions to be deductible for income tax purposes. The goodwill associated with another acquisition is not expected to be deductible for income tax purposes.

Pro forma results of operations have not been presented because the effects of 2020 acquisitions, individually and in the aggregate, were not material to our consolidated results of operations.

2020 Disposal

On May 29, 2020, the Company disposed of the Serviz business. At the same time, the Company entered into a revenue transaction with the buyer of Serviz that will be satisfied over a one-year service period. In consideration for both the Serviz business and the revenue transaction, the Company received $5.0 million in cash and the buyer cancelled the Company’s convertible promissory note which was recorded under the FVO and had a fair value at the time of the transaction of $2.7 million. The consideration allocated to the revenue transaction based on the fair value of services to be delivered is $5.0 million. The remainder of the consideration, was determined to be consideration for Serviz. Serviz had net assets of approximately $1.3 million. The Company recorded a gain of $1.4 million included in the gain on divestiture of businesses in the consolidated statements of operations for the year ended December 31, 2020.

2019 Acquisitions and Disposals

The Company acquired a business that connects new homebuyers to utility companies, for aggregate consideration of $0.5 million which included definite-lived intangible assets of $0.3 million, net liabilities of $0.8 million and goodwill of $1.0 million. The purpose of the acquisition was to expand the scope and nature of the Company’s product and service offerings, obtain new customer acquisition channels, add additional team members with important skillsets, and realize synergies. The transaction costs associated with this acquisition were $0.1 million and are included in general and administrative expenses on the consolidated statements of operations. The acquisition was not material to the consolidated financial statements.

The Company divested of a company and as a part of the transaction, received 23,488 shares of Porch’s common stock. The Company recorded a $4.5 million loss upon disposal in loss on divestiture of businesses in the consolidated statements of operations for the year ended December 31, 2019.