Business Combinations

9 Months Ended

Sep. 30, 2020

Business Combinations [Abstract]

Business Combinations

Note 11. Business combinations

Our acquisition strategy focuses on businesses with a leadership team that is committed to best in class culture, extraordinary client service and cross-serving potential. CBIZ has a long history of acquiring businesses that share common cultural values with us and provide value-added services to the small and midsize business market. The valuation of any business is a subjective process and includes industry, geography, profit margins, expected cash flows, client retention, nature of recurring or non-recurring project-based work, growth rate assumptions and competitive market conditions.    

During the nine months ended September 30, 2020, we completed the following acquisitions:

• Effective February 1, 2020, we acquired substantially all the assets of Alliance Insurance Services, Inc. (“Alliance”), a provider of insurance and advisory services based in Washington, DC. Operating results will be reported in the Benefits and Insurance Services practice group.  

• Effective February 1, 2020, we acquired substantially all the assets of Pension Dynamics Company, LLC (“PD”), a full-service retirement and benefits plan advisor based in Pleasant Hill, California. Operating results will be reported in the Benefits and Insurance Services practice group.  

• Effective February 1, 2020, we acquired substantially all the assets of Sunshine Systems (“Sunshine”), a payroll solutions provider based in Massachusetts. Operating results will be reported in the Benefits and Insurance Services practice group.  

• Effective July 1, 2020, we acquired substantially all the assets of Prince-Wood Insurance, L.L.C. (“PWI”), a provider of financial, insurance and advisory services based in Woodbridge, Virginia. Operating results will be reported in the Benefits and Insurance practice group.

• Effective September 1, 2020, we acquired substantially all the assets of ARC Consulting LLC and ARC Placement Group LLC (collectively “ARC”), a provider of financial, insurance and advisory services based in San Francisco, California. Operating results will be reported in the Financial Services practice group.

Aggregate consideration for these acquisitions consisted of approximately $35.5 million in cash, $3.5 million in our common stock and $16.3 million in contingent consideration. Under the terms of the acquisition agreements, a portion of the purchase price is contingent on future performance of the business acquired. The maximum potential undiscounted amount of all future payments for 2020 acquisitions that we could be required to make under the contingent arrangements is $18.7 million. As of September 30, 2020, the aggregated fair value of contingent consideration related to these acquisitions was $16.4 million, of which $5.0 million was recorded in Contingent purchase price liability – current and $11.4 million was recorded in Contingent purchase price liability – non-current in the accompanying Consolidated Balance Sheets at September 30, 2020. Refer to Note 7. Fair Value Measurements, for additional information regarding contingent purchase price liability fair value and fair value adjustments.

Annualized revenue from the acquired businesses is estimated to be approximately $24.6 million. Pro forma results of operations for these acquisitions have not been presented because the effects of the acquisitions were not significant to our Income from continuing operations before income taxes.

During the nine months ended September 30, 2019, we have acquired substantially all of the assets of the following businesses:

• Effective January 1, 2019, we acquired substantially all of the assets of Wenner Group, LLC (“Wenner”), located in Denver, Colorado. Wenner is a full service accounting, tax, compliance and financial consulting firm. Wenner is included as a component of our Financial Services practice group.

• Effective July 1, 2019, we acquired substantially all of the assets of Paydayta, Inc. (d.b.a. Paytime) (“Paytime”), an Ohio-based payroll service provider. Paytime is included as a component of our Benefit and Insurance Services practice group.

• Effective July 1, 2019, we acquired substantially all of the assets of Gavion, LLC (“Gavion”), a registered investment advisor based in Memphis, Tennessee. Gavion provides investment-consulting services to a diverse base of institutional clients. Gavion is included as a component of our Benefit and Insurance Services practice group.

• Effective August 1, 2019, we acquired substantially all of the assets of QBA Benefits, LLC. (“QBA”), an employee benefits agency based in Cleveland, Ohio. QBA provides employee benefits related services to small

and mid-sized clients across multiple industries such as services, technology, energy, and manufacturing. QBA is included as a component of our Benefit and Insurance Services practice group.

• Effective August 1, 2019, we acquired substantially all of the assets of Ericson CPAs (“Ericson”), an accounting firm based in San Luis Obispo, California. Ericson provides tax compliance, consulting, and planning services to a diverse base of clients. Ericson is included as a component of our Financial Services practice group.

• Effective September 1, 2019, we acquired substantially all of the assets of Brinig Taylor Zimmer, Inc. (“BTZ”), a specialized financial consulting firm based in San Diego, California. BTZ provides forensic accounting, litigation consulting and business valuation services to a wide range of clients from individual to small business and large public traded entities. BTZ is included as a component of our Financial Services practice group.

Aggregated consideration for these six acquisitions consisted of approximately $19.4 million in cash (including $6.9 million acquired client funds and $0.8 million cash acquired), $2.0 million in our common stock, and $11.2 million in contingent considerations. The maximum potential undiscounted amount of all future payments for 2019 acquisitions that we could be required to make under the contingent arrangements is $11.6 million. As of September 30, 2019, the aggregated fair value of the contingent considerations related to these acquisitions was $10.3 million, of which $2.9 million was recorded in Contingent purchase price liability – current and $7.4 million was recorded in Contingent purchase price liability – non-current in the accompanying Consolidated Balance Sheets at September 30, 2019. Refer to Note 7. Fair Value Measurements, for additional information regarding contingent purchase price liability fair value and fair value adjustments.

Annualized aggregated revenue for these acquisitions is estimated to be approximately $17.4 million. Pro forma results of operations for these acquisitions are not presented because the effects of these acquisitions were not significant either individually or in aggregate to our consolidated Income from continuing operations before income taxes.

The following table summarizes the amounts of identifiable assets acquired, liabilities assumed and aggregate purchase price for the acquisitions for the nine months ended September 30, 2020 and 2019 (in thousands):

	Nine Months Ended
	September 30,
	2020			2019
Cash	$	233		$	826
Accounts receivable		3,314			1,843
Funds held for clients		1,716			6,878
Operating lease right-of-use asset, net		1,427			2,789
Other assets		250			99
Identifiable intangible assets		4,788			7,725
Operating lease liability - current		(408	)		(1,013	)
Other current liabilities		(1,856	)		(2,245	)
Operating lease liability - noncurrent		(1,019	)		(1,776	)
Client fund obligations		(1,716	)		(6,878	)
Total identifiable net assets	$	6,729		$	8,248
Goodwill		48,584			24,369
Aggregate purchase price	$	55,313		$	32,617

The goodwill of $48.6 million and $24.4 million arising from the acquisitions for the nine months ended September 30, 2020 and 2019, respectively, primarily results from expected future earnings and cash flows from the existing management team, as well as the synergies created by the integration of the new business within our organization, including cross-selling opportunities expected with our Financial Services practice group and the Benefits and Insurance Services practice group, to help strengthen our existing service offerings and expand our market position. All of the goodwill is deductible for income tax purposes.

Acquisition of Client Lists - During the nine months ended September 30, 2020, we purchased two client lists reported in the Benefits and Insurance Services practice group and one client list reported in the Financial Services practice group for total consideration of $0.6 million, of which $0.3 million is contingent.  During the nine months ended September 30, 2019, we purchased one client list, reported in the Benefits and Insurance Services practice group, for $0.3 million, which included $0.2 million in contingent consideration.

Change in Contingent Purchase Price Liability for Previous Acquisitions - During the nine months ended September 30, 2020 and 2019, the fair value of the contingent purchase price liability related to prior acquisitions decreased by $0.1 million and increased by $0.3 million, respectively. The change in fair value during the nine months ended September 30, 2020 is mostly attributable to the change in stock price related to the mark-to-market adjustment of future common stock issuances offset by net present value adjustments. The change in fair value during the nine months ended September 30, 2019 is mostly attributable to the change in stock price related to the mark-to-market adjustment of future common stock issuances and net present value adjustments, offset by subsequent measurement adjustments based on future results of the acquired businesses. These adjustments are included in Other income (expense), net in the accompanying Consolidated Statements of Comprehensive Income.

Contingent Payments for Previous Business Acquisitions and Client Lists - We paid $10.9 million in cash and issued approximately 0.1 million shares of our common stock during the nine months ended September 30, 2020 for previous acquisitions. For the same period in 2019, we paid $16.3 million in cash and issued approximately 0.1 million shares of our common stock for previous acquisitions. During the nine months ended September 30, 2020 and 2019, we paid approximately $0.5 million and $0.7 million, respectively, in cash for previous client list purchases.