Acquisitions

6 Months Ended

Jun. 30, 2019

ACQUISITIONS

Franchisee Acquisitions - 2018

During 2018, the Company acquired 152 Aaron's-branded franchised stores operated by franchisees for an aggregate purchase price of $189.8 million, exclusive of the settlement of pre-existing receivables and post-closing working capital settlements.

The acquired operations generated revenues of $45.9 million and $94.8 million during the three and six months ended June 30, 2019, respectively, and $4.0 million and $5.2 million during the comparable prior year periods. The acquired operations generated losses before income taxes of $1.1 million and earnings before income taxes of $1.5 million during the three and six months ended June 30, 2019, respectively, and earnings before income taxes of $0.6 million and $0.8 million during the comparable prior year periods. The revenues and earnings before income taxes described above are included in our condensed consolidated statements of earnings for the respective periods.

The results of the acquired operations were negatively impacted by acquisition-related transaction and transition costs, amortization expense of the various intangible assets recorded from the acquisitions, and restructuring charges incurred under the 2019 restructuring program associated with the closure of a number of acquired stores. The revenues and earnings before income taxes of the acquired operations discussed above have not been adjusted for estimated non-retail sales and franchise royalties and fees and related expenses that the Company could have generated as revenue and expenses to the Company from the franchisees during the three and six months ended June 30, 2019 and 2018 had the transaction not been completed.

Acquisition Accounting

The 2018 acquisitions are benefiting the Company's omnichannel platform through added scale, strengthening its presence in certain geographic markets, and enhancing operational control, including compliance, and enabling the Company to execute its business transformation initiatives on a broader scale. The following table presents summaries of the preliminary fair value of the assets acquired and liabilities assumed in the franchisee acquisitions as of the respective acquisition dates:



(In Thousands)	Amounts Recognized as of Acquisition Dates (as of March 31, 2019)¹			Acquisition Accounting Adjustments			Amounts Recognized as of Acquisition Dates (as of June 30, 2019)
Purchase Price	$	189,826		$	341		$	190,167
Add: Settlement of Pre-existing Relationship	5,405			—			5,405
Less: Working Capital Adjustments	155			—			155
Aggregate Consideration Transferred	195,386			341			195,727
Estimated Fair Value of Identifiable Assets Acquired and Liabilities Assumed
Cash and Cash Equivalents	50			—			50
Lease Merchandise	59,616			—			59,616
Property, Plant and Equipment	5,568			—			5,568
Operating Lease Right-of-Use Assets	—			—			—
Other Intangibles²	24,498			—			24,498
Prepaid Expenses and Other Assets	1,206			—			1,206
Total Identifiable Assets Acquired	90,938			—			90,938
Accounts Payable and Accrued Expenses	(910		)	(67		)	(977		)
Customer Deposits and Advance Payments	(5,156		)	—			(5,156		)
Total Liabilities Assumed	(6,066		)	(67		)	(6,133		)
Goodwill³	110,514			408			110,922
Net Assets Acquired	$	84,872		$	(67	)	$	84,805

¹ As previously reported in Note 2 to the condensed consolidated financial statements as of March 31, 2019.

²Identifiable intangible assets are further disaggregated in the table set forth below.

³ The total goodwill recognized in conjunction with the franchisee acquisitions, all of which is expected to be deductible for tax purposes, has been assigned to the Aaron’s Business reporting unit. The purchase price exceeded the fair value of the net assets acquired, which resulted in the recognition of goodwill, primarily due to synergies created from the expected future benefits to the Company’s omnichannel platform, implementation of the Company’s operational capabilities, expected inventory supply chain synergies between the Aaron’s Business and Progressive Leasing, and control of the Company’s brand name in new geographic markets. Goodwill also includes certain other intangible assets that do not qualify for separate recognition, such as an assembled workforce.

The preliminary acquisition accounting presented above is subject to refinement. The Company is still finalizing the valuation of assumed favorable and unfavorable real estate operating leases based on comparable market terms of similar leases at the acquisition dates and obtaining additional information regarding other assets. The Company expects these items to be finalized prior to the one-year anniversary date of the acquisitions.

The estimated intangible assets attributable to the franchisee acquisitions are comprised of the following:



	Fair Value (In Thousands)		Weighted Average Life (In Years)
Non-compete Agreements	$	1,872	3.0
Customer Lease Contracts	7,876		1.0
Customer Relationships	10,087		3.0
Reacquired Franchise Rights	4,663		3.9
Total Acquired Intangible Assets¹	$	24,498

¹Acquired definite-lived intangible assets have a total weighted average life of 2.5 years.

The Company incurred $1.6 million of acquisition-related costs in connection with the franchisee acquisitions, substantially all of which were incurred during 2018. These costs were included in operating expenses in the condensed consolidated statements of earnings.

Other Acquisitions

In addition to the acquisitions discussed above, the Company acquired the store operations of five franchisees during the six months ended June 30, 2019 and the six months ended June 30, 2018.

Net cash outflows related to the acquisitions of other Aaron's franchisees, other rent-to-own store businesses, and customer contracts aggregated to $7.6 million and $14.4 million during the six months ended June 30, 2019 and 2018, respectively. The effect of these acquisitions on the condensed consolidated financial statements for the three and six months ended June 30, 2019 and 2018 was not significant.