Acquisitions

12 Months Ended

Dec. 31, 2012

Acquisitions [Abstract]

Acquisitions

19. Acquisitions

During the twelve months ended December 31, 2012, CBIZ acquired substantially all of the assets of nine companies, Meridian Insurance Group, LLC (“Meridian”), Primarily Care, Inc. (“PCI”) Stoltz and Company, LTD., L.L.P (“Stoltz”), Trinity Risk Advisors, Inc.(“Trinity”), Strategic Employee Benefit Services — The Pruett Group, Inc. (“SEBS-Pruett”), ProMedical, Inc. (“ProMedical”), the employee benefit division of Leavitt Pacific Insurance Brokers, Inc. (“Leavitt”), Diversified Industries, Inc. d/b/a Payroll Control Systems (“PCS”) and PHBV Partners, L.L.P. (“PHBV”). Meridian, with offices in Boca Raton, Florida and Atlanta, Georgia, is an insurance brokerage specializing in multiple insurance products and services including property and casualty, bonding, personal lines and employee benefits. PCI, located in Cranston, Rhode Island, is an employee benefits brokerage firm that offers long-term healthcare cost reduction strategies through a unique system comprised of technology, innovative plan design, educational tools and tangible financial health incentives. Stoltz, with offices in Midland, San Antonio and Amarillo, Texas, is an insurance brokerage offering multiple insurance products and services including property and casualty, personal lines and employee benefits with specialization in oil and gas related risk management. Trinity, located in Atlanta, Georgia, is a specialty property and casualty brokerage firm focused primarily on medical malpractice insurance to the healthcare industry and specialized insurance to the transportation industry. SEBS-Pruett, with offices in Nashville, Chattanooga, Johnson City and Knoxville, Tennessee, is an employee benefit and consulting firm for mid-sized businesses. ProMedical, located in Ocala, Florida, is a full-service provider of medical billing and practice management services for hospital-based anesthesiology practices. Leavitt, located in Campbell, California, provides employee benefits, retirement plan services and ancillary business support and services to clients in the San Jose region. PCS, located in Brooklyn Center, Minnesota, provides payroll, payroll tax, time and labor and human resources solutions to small and mid-sized clients. PHBV, with offices in Richmond, Virginia; Baltimore, Maryland; Indianapolis, Indiana; Austin, Texas; Cranford, New Jersey; and Raleigh, North Carolina, is a professional consulting and accounting service provider specializing in health care compliance on behalf of federal and state government agencies. The operating results of Meridian, Primarily Care, Stoltz, Trinity, SEBS-Pruett, Leavitt and PCS are reported in the Employee Services practice group, and the operating results of ProMedical and PHBV are reported in the MMP and Financial Services practice groups, respectively. As a result of these acquisitions, revenue of approximately $26.6 million was recorded during the twelve months ended December 31, 2012.

Aggregate consideration for these acquisitions consisted of approximately $79.3 million in cash, $4.2 million in CBIZ Common Stock, $5.3 million in short-term notes payable, $1.7 million in guaranteed future consideration, and $17.6 million in contingent consideration.

The preliminary aggregate purchase price for these acquisitions, pending final working capital adjustments, was allocated as follows (in thousands):

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	422
Funds held for clients		39,193
Accounts receivable, net		8,275
Fixed assets and other		690
Identifiable intangible assets		42,372
Accrued liabilities		(5,393	)
Client fund obligations		(39,193	)
Deferred tax liability		(1,236	)
Total identifiable net assets	$	45,130
Goodwill		62,931
Aggregate purchase price	$	108,061

Under the terms of the acquisition agreements, a portion of the purchase price is contingent on future performance of the businesses acquired. The maximum potential undiscounted amount of all future payments that CBIZ could be required to make under the contingent arrangements is $20.9 million. CBIZ is required to record the fair value of this obligation at the acquisition date. CBIZ determined, utilizing a probability weighted income approach, that the fair value of the contingent consideration arrangement was $17.6 million, of which $5.7 million was recorded in “Other current liabilities” and $11.9 million was recorded in “Other non-current liabilities” in the consolidated balance sheet at December 31, 2012.

The goodwill of $62.9 million arising from the acquisitions in the current year consists largely of expected future earnings and cash flow from the existing management team, as well as the synergies created by the integration of the new business within the CBIZ organization, including cross-selling opportunities expected with the Company’s Financial Services group, the Employee Services group and MMP, to help strengthen the Company’s existing service offerings and expand the Company’s market position. Goodwill totaling $58.1 million is expected to be deductible for income tax purposes.

On February 1, 2012, CBIZ also purchased an employee benefits and consulting client list which is reported in the Employee Services practice group. Aggregate consideration for this client list consisted of up to $2.5 million in cash, which is contingent upon future financial performance of the client list.

In addition, CBIZ paid $25.6 million in cash and issued approximately 402,000 shares of Common Stock and 41,314 shares of Common Stock became issuable during the year ended December 31, 2012 as contingent earnouts for previous acquisitions. During the twelve months ended December 31, 2012, CBIZ also reduced the fair value of the contingent purchase price liability related to CBIZ’s prior acquisitions by $1.1 million due to lower than originally projected future results of the acquired businesses. This reduction of $1.1 million is included in “Other (expense) income, net” in the consolidated statements of comprehensive income. Refer to Note 8 for further discussion of contingent purchase price liabilities.

During the year ended December 31, 2011, CBIZ acquired four companies: Thompson Dunavant PLC, Multiple Benefit Services, Inc. (“MBS”), Gresham Smith LLC and Atlantic MDR, LLC (d/b/a Advantage Benefit Planning) (“ABP”). Thompson Dunavant PLC, a full-service accounting and financial services company located in Memphis, Tennessee, provides tax and financial consulting services to clients of various sizes and in a variety of industries. MBS, an employee benefits company located in Atlanta, Georgia, provides employee benefit consulting and support services to clients in a wide variety of industries. Gresham Smith LLC, with offices in Tulsa, Oklahoma and St. Louis, Missouri, provides traditional accounting services to privately held, for profit clients. ABP, located in Pleasantville, New Jersey, provides employee benefits and retirement planning services. The operating results of Thompson Dunavant PLC and Gresham Smith LLC are reported in the Financial Services practice group. The operating results of MBS and ABP are reported in the Employee Services practice group.

Aggregate consideration for these acquisitions is expected to be approximately $29.6 million, which consists of $11.8 million in cash and $3.3 million in CBIZ Common Stock that was paid at closing, $1.1 million in guaranteed future consideration, and $13.4 million net present value in contingent consideration to be settled primarily in cash and a portion in Common Stock, subject to the acquired operations achieving certain performance targets.

The aggregate purchase price for these acquisitions was allocated as follows (in thousands):

Recognized amounts of identifiable assets acquired and liabilities assumed:
Cash	$	273
Accounts receivable, net		3,606
Fixed assets and other		437
Identifiable intangible assets		11,072
Deferred income taxes — non-current		(1,775	)
Accrued liabilities		(924	)
Total identifiable net assets	$	12,689
Goodwill		16,869
Aggregate purchase price	$	29,558

Under the terms of the acquisition agreements, a portion of the purchase price is contingent on future performance of the businesses acquired. The potential undiscounted amount of all future payments that CBIZ could be required to make under the contingent arrangements is between $0 and $15.1 million. CBIZ is required to record the fair value of these obligations at the acquisition date. CBIZ determined, utilizing a probability weighted income approach, that the fair value of the contingent consideration arrangements was $13.4 million, of which $4.1 million was recorded in “Other current liabilities” and $9.3 million was recorded in “Other non-current liabilities” in the consolidated balance sheets at December 31, 2011.

The goodwill of $16.9 million arising from the acquisitions in 2011 consists largely of expected future earnings and cash flow from the existing management team, as well as the synergies created by the integration of the new businesses within the CBIZ organization, including cross-selling opportunities expected with the Company’s Financial Services group and the Employee Services group, to help strengthen the Company’s existing service offerings and expand the Company’s market position. Goodwill totaling $11.8 million is expected to be deductible for income tax purposes.

CBIZ also purchased one client list in 2011 which is reported in the Employee Services practice group. Consideration for this acquisition consisted of $0.8 million cash paid at closing and up to an additional $0.6 million in cash which is contingent upon future financial performance of the client list.

During the year ended December 31, 2011, CBIZ reduced the fair value of the contingent purchase price liability related to CBIZ’s prior acquisitions by $3.5 million due to lower than originally projected future results of the acquired businesses. This reduction of $3.5 million is included in “Other income, net” in the consolidated statements of comprehensive income. See Note 8 for further discussion of contingent purchase price liabilities.

In addition, CBIZ paid $16.7 million in cash, issued approximately 38,900 shares of Common Stock, and 251,100 shares of Common Stock became issuable during the year ended December 31, 2011 as contingent proceeds and payments against notes payable for previous acquisitions.

During the year ended December 31, 2010, CBIZ acquired substantially all of the assets of four companies: Goldstein Lewin & Company, National Benefit Alliance, South Winds, Inc. (d/b/a “Benexx”) and Kirkland, Russ, Murphy & Tapp. Goldstein Lewin & Company, an accounting and financial services company located in Boca Raton, Florida, provides accounting services and financial advisory services, tax planning and compliance, wealth preservation and estate planning, business valuation and litigation support. National Benefit Alliance, an employee benefits company located in Midvale, Utah, designs, implements and administers employee benefit plans for government contractors as well as commercial clients. Benexx, a retirement plan consulting firm located in Baltimore, Maryland, provides 401K and other qualified retirement plan services for small and mid-sized companies. Kirkland, Russ, Murphy & Tapp, an accounting and financial services company located in Tampa, Florida, provides assurance, tax, business valuation, financial advisory and consulting services. The operating results of Goldstein Lewin & Company and Kirkland, Russ, Murphy & Tapp are reported in the Financial Services practice group and the operating results of National Benefit Alliance and Benexx are reported in the Employee Services practice group.

Aggregate consideration for these acquisitions is expected to be approximately $49.6 million, which consists of $29.4 million in cash and $3.5 million in CBIZ common stock that was paid at closing, $0.4 million in guaranteed future consideration, and $16.3 million net present value in contingent consideration to be settled primarily in cash and a portion in common stock, subject to the acquired operations achieving certain performance targets.

The aggregate purchase price for these acquisitions was allocated as follows (in thousands):

Recognized amounts of identifiable assets acquired and liabilities assumed:
Accounts receivable, net	$	1,294
Prepaid expenses and other current assets		1,430
Fixed assets		1,659
Identifiable intangible assets		11,550
Accrued liabilities		(303	)
Total identifiable net assets	$	15,630
Goodwill		33,986
Aggregate purchase price	$	49,616

Under the terms of the acquisition agreements, a portion of the purchase price is contingent on future performance of the businesses acquired. The potential undiscounted amount of all future payments that CBIZ could be required to make under the contingent arrangements is between $0 and $17.0 million. At the acquisition date, CBIZ is required to record the fair value of these obligations, which was $16.3 million, utilizing a probability weighted income approach. During 2010, payments totaling $3.3 million consisting of cash and stock were paid as contingent consideration that related to the 2010 acquisitions. At December 31, 2010, the remaining fair value of the contingent consideration arrangements related to the 2010 acquisitions was $13.1 million, of which $2.6 million was recorded in “Other current liabilities” and $10.5 million was recorded in “Other non-current liabilities” in the consolidated balance sheets.

The goodwill of $34.0 million arising from the acquisitions in 2010 consists largely of expected future earnings and cash flows from the existing management team, as well as the synergies created by the integration of the new businesses within the CBIZ organization, including cross-selling opportunities expected with the Company’s Financial Services group and the Employee Services group, to help strengthen the Company’s existing service offerings and expand the Company’s market position. The goodwill recognized is expected to be deductible for income tax purposes.

During 2010, CBIZ adjusted the fair value of the contingent purchase price liability related to CBIZ’s prior acquisitions from $5.6 million to $4.2 million due to lower than originally projected future results of the acquired businesses. This reduction of $1.4 million is included in “Other income, net” in the consolidated statements of comprehensive income. In addition, CBIZ paid $20.0 million in cash, issued approximately 13,100 shares of Common Stock, and 265,000 shares of Common Stock became issuable during the year ended December 31, 2010 as contingent proceeds and payments against notes payable for previous acquisitions.

The operating results of all acquired businesses are included in the accompanying consolidated financial statements since the dates of acquisition. Client lists and non-compete agreements are recorded at fair value at the time of acquisition. The excess of purchase price over the fair value of net assets acquired, (including client lists and non-compete agreements) is allocated to goodwill.

Additions to goodwill, client lists and other intangible assets resulting from acquisitions and contingent consideration earned during the years ended December 31, 2012 and 2011 were as follows (in thousands):

	2012		2011
Goodwill	$	63,428	$	35,647
Client lists	$	43,095	$	12,129
Other intangible assets	$	1,592	$	512

As a result of CBIZ’s acquisition activities in 2012, the following table provides unaudited pro forma financial information for CBIZ as if all the current year acquisitions were acquired on January 1, 2012. The unaudited pro forma financial information includes the effect of financing resulting in interest expense of approximately $2.1 million, amortization expense of $2.8 million resulting from acquired intangible assets, and other adjustments to normalize certain expenses such as benefits, commissions and incentive compensation. The unaudited pro forma results of operations are presented for illustrative purposes only and are not necessarily indicative of the results of operation that would have been obtained had these businesses actually been acquired at January 1, 2012, nor are they intended to be a projection of future results of operations. No pro forma information is presented for the year ended December 31, 2011 due to lack of available data.

	Twelve Months Ended December 31, 2012
	Consolidated As Reported		Pro Forma Adjustments		Pro Forma Consolidated
Revenue	$	766,094	$	48,808	$	814,902
Net income	$	31,146	$	4,917	$	36,063
Earnings per share:
Basic	$	0.63	$	0.10	$	0.73
Diluted	$	0.63	$	0.10	$	0.73
Weighted average common shares outstanding:
Basic		49,002		508		49,510
Diluted		49,252		492		49,744