Business Combinations

6 Months Ended

Jun. 30, 2022

Business Combinations

Business Combinations

13. Business Combinations

During the six months ended June 30, 2022, the Company completed a number of business combination transactions. The aggregate transaction costs of $1.1 million primarily comprised of legal and due-diligence fees, and are included in general and administrative expenses on the condensed 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 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 the six months ended June 30, 2022:

	Weighted Average Useful Life (in years)	RWS		Other		Total
Purchase consideration:
Cash(1)		$	25,572	$	13,763	$	39,335
Issuance of common stock			3,552		—		3,552
Holdback liabilities and amounts in escrow			1,000		1,500		2,500
Contingent consideration - liability-classified			15,555		—		15,555
Total purchase consideration:		$	45,679	$	15,263	$	60,942
Assets:
Cash, cash equivalents and restricted cash		$	2,030	$	256	$	2,286
Current assets			525		7		532
Property and equipment			497		—		497
Operating lease right-of-use assets			871		—		871
Intangible assets:
Customer relationships	7.0		11,920		2,750		14,670
Acquired technology	4.5		500		1,480		1,980
Trademarks and tradenames	9.3		500		200		700
Non-competition agreements	6.6		180		20		200
Renewal rights	5.0		90		—		90
Goodwill			36,726		10,719		47,445
Total assets acquired			53,839		15,432		69,271
Current liabilities			(4,884)		(169)		(5,053)
Operating lease liabilities, non-current			(871)		—		(871)
Long term liabilities			(2,405)		—		(2,405)
Net assets acquired		$	45,679	$	15,263	$	60,942

⁽¹⁾Includes $5.0 million paid in July 2022, and included in accrued expenses and other current liabilities as of June 30, 2022.

April 1, 2022 Acquisition of Residential Warranty Services (“RWS”)

On April 1, 2022, the Company entered into a stock and membership interest purchase agreement with Residential Warranty Services (“RWS”) to acquire its home warranty and inspection software and services businesses. On this date, the Company completed the acquisition of substantially all of RWS’ operations except for those in Florida and California. The aggregate consideration, subject to certain closing adjustments, for the completed acquisitions was $45.7 million, including $20.6 million in cash of which $5.0 million was paid in March 2022, $6.0 million in future cash payable of which $1.0 million will be held in escrow for 24 months to satisfy potential indemnifications, $3.6 million of Porch common stock and additional contingent consideration tied to the performance of a recently launched business line, and $15.6 million in contingent consideration based on specific metrics. $5.0 million of cash consideration was paid in July 2022. The Company recorded the fair value of the assets acquired and liabilities assumed on the acquisition date.

The acquisitions of the Florida and California operations are subject to certain regulatory and other approvals and are expected to close in the second half of 2022 or as soon as practicable thereafter. The Company expects to pay approximately $2.4 million, subject to certain closing adjustments, to close these acquisitions.

The purpose of the acquisitions is to expand the scope and nature of Porch’s service offerings, add additional team members with important skillsets, and realize synergies. Goodwill is expected to be deductible for tax purposes and is subject to further adjustment pending the closing of the acquisition of the remaining RWS operations in Florida and California. The Company will assign the goodwill to reporting units, which will be determined pending completion of the remaining acquisitions.

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

			Estimated
	Fair		Useful Life
	Value		(in years)
Intangible assets:
Customer relationships	$	11,920	5.4
Acquired technology		500	3.0
Trademarks and tradenames		500	9.0
Non-competition agreements		180	7.0
Renewal rights		90	5.0
	$	13,190

The weighted-average amortization period for the acquired intangible assets is 5.5 years.

The estimated fair value of the customer related intangible assets, including renewal rights, was calculated through the income approach using the multi-period excess earnings methodology. The estimated fair value of the trademarks and tradenames were calculated through the income approach using the relief from royalty methodology. The estimated fair value of the acquired internally developed and used technology was derived using the cost approach considering the estimated costs to replicate existing software. The estimated fair value of the non-competition agreement was calculated through the income approach using the with and without method over the contractual term of the agreement.

Other acquisitions

In the quarter ended June 30, 2022, the Company completed one or more acquisitions which were not material to the condensed consolidated financial statements. The purpose of any such acquisition, may include without limitation, to expand the scope and nature of the Company’s services offerings, add additional team members with important skillsets, and/or realize synergies. Goodwill of $10.7 million is expected to be deductible for tax purposes.