Business Combinations

3 Months Ended

Mar. 31, 2017

Business Combinations [Abstract]

Business Combinations

Business Combinations

During the three months ended March 31, 2017, Brown & Brown did not acquire any insurance intermediaries, however there were miscellaneous adjustments recorded to the purchase price allocation of certain prior acquisitions completed within the last twelve months as permitted by Accounting Standards Codification Topic 805 — Business Combinations (“ASC 805”). Such adjustments are presented in the "Other" category within the following two tables. The recorded purchase price for all acquisitions consummated after January 1, 2009 included an estimation of the fair value of liabilities associated with any potential earn-out provisions. Subsequent changes in the fair value of earn-out obligations will be recorded in the Condensed Consolidated Statement of Income when incurred.

The fair value of earn-out obligations is based on the present value of the expected future payments to be made to the sellers of the acquired businesses in accordance with the provisions outlined in the respective purchase agreements. In determining fair value, the acquired business’s future performance is estimated using financial projections developed by management for the acquired business and reflects market participant assumptions regarding revenue growth and/or profitability. The expected future payments are estimated on the basis of the earn-out formula and performance targets specified in each purchase agreement compared to the associated financial projections. These payments are then discounted to present value using a risk-adjusted rate that takes into consideration the likelihood that the forecasted earn-out payments will be made.

Based on the acquisition date and the complexity of the underlying valuation work, certain amounts included in the Company’s Condensed Consolidated Financial Statements may be provisional and thus subject to further adjustments within the permitted measurement period, as defined in ASC 805. For the three months ended March 31, 2017, several adjustments were made within the permitted measurement period that resulted in an increase in the aggregate purchase price of the affected acquisitions of $489,720 relating to the assumption of certain liabilities. These measurement period adjustments have been reflected as current period adjustments in the three months ended March 31, 2017 in accordance with the guidance in ASU 2015-16 "Business Combinations". The measurement period adjustments primarily impacted goodwill, with no effect on earnings or cash in the current period.

The following table summarizes the changes to purchase price allocations made during the measurement period for prior year acquisitions. During the measurement periods, the Company will adjust assets or liabilities if new information is obtained about facts and circumstances that existed as of the acquisition date that, if known, would have resulted in the recognition of those assets and liabilities as of that date. These adjustments are made in the period in which the amounts are determined and the current period income effect of such adjustments will be calculated as if the adjustments had been completed as of the acquisition date.

(in thousands)
Name	Business Segment	Effective Date of Acquisition	Cash Paid		Note Payable		Other Payable		Recorded Earn-Out Payable			Net Assets Acquired			Maximum Potential Earn- Out Payable
Other	Various	Various	—		—		—		(211		)	(211		)	—
Total			$	—	$	—	$	—	$	(211	)	$	(211	)	$	—

The following table summarizes the adjustments made to the estimated fair values of the aggregate assets and liabilities for prior year acquisitions as of the date of each acquisition.

(in thousands)	Other			Total
Other current assets	93			93
Goodwill	429			429
Purchased customer accounts	(32		)	(32		)
Total assets acquired	490			490
Other current liabilities	(12		)	(12		)
Deferred income tax, net	(689		)	(689		)
Total liabilities assumed	(701		)	(701		)
Net assets acquired	$	(211	)	$	(211	)

As of March 31, 2017, the fair values of the estimated acquisition earn-out payables were re-evaluated and measured at fair value on a recurring basis using unobservable inputs (Level 3) as defined in ASC 820-Fair Value Measurement. The resulting additions, payments, and net changes, as well as the interest expense accretion on the estimated acquisition earn-out payables, for the three months ended March 31, 2017 and 2016, were as follows:

	For the three months   ended March 31,
(in thousands)	2017			2016
Balance as of the beginning of the period	$	63,821		$	78,387
Additions to estimated acquisition earn-out payables	(211		)	606
Payments for estimated acquisition earn-out payables	(10,230		)	(9,077		)
Subtotal	53,380			69,916
Net change in earnings from estimated acquisition earn-out payables:
Change in fair value on estimated acquisition earn-out payables	3,335			(1,563		)
Interest expense accretion	693			742
Net change in earnings from estimated acquisition earn-out payables	4,028			(821		)
Balance as of March 31,	$	57,408		$	69,095

Of the $57.4 million estimated acquisition earn-out payables as of March 31, 2017, $35.3 million was recorded as accounts payable and $22.1 million was recorded as other non-current liabilities. As of March 31, 2017, the maximum future acquisition contingency payments related to all acquisitions was $106.4 million. Included within the additions to estimated acquisition earn-out payables are any adjustments to opening balance sheet items within the allowable measurement period, which may therefore differ from previously reported amounts.