Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

v3.22.2
Business Combinations
 9 Months Ended
Jun. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Business Combinations BUSINESS COMBINATIONS
VES Group, Inc. (VES)
On May 28, 2021, the Company acquired 100% of VES for a purchase price of $1.37 billion (the "VES Acquisition"). VES was integrated into our U.S. Federal Services Segment. The VES Acquisition supports our ongoing strategic priority of expansion into the U.S. Federal market and accelerates our clinical evolution to meet long-term demand for BPS with a clinical dimension. We have completed our valuation of all acquired assets and liabilities assumed.
Table 6.1: VES Valuation
Allocation of Assets and Liabilities as of September 30, 2021 Adjustments Allocation of Assets and Liabilities as of June 30, 2022
(in thousands)
Consideration paid:
Cash consideration, net of cash acquired $ 1,364,866  $ 5,765  $ 1,370,631 
Assets acquired:
Accounts receivable - billed, billable and unbilled $ 44,078  $ —  $ 44,078 
Prepaid expenses and other current assets 7,955  —  7,955 
Property and equipment, net 9,113  (1,092) 8,021 
Operating lease right-of-use assets 18,898  —  18,898 
Intangible assets 664,000  —  664,000 
Other assets 7,166  —  7,166 
Total identifiable assets acquired 751,210  (1,092) 750,118 
Liabilities assumed:
Accounts payable and accrued compensation 42,182  1,804  43,986 
Operating lease liabilities 18,898  —  18,898 
Income taxes payable, current 5,673  —  5,673 
Deferred income taxes 171,497  (474) 171,023 
Other long-term liabilities 12,270  —  12,270 
Total identifiable liabilities assumed 250,520  1,330  251,850 
Net identifiable assets acquired 500,690  (2,422) 498,268 
Goodwill 864,176  8,187  872,363 
Net assets acquired $ 1,364,866  $ 5,765  $ 1,370,631 
Goodwill represents the value of the assembled workforce and the enhanced knowledge, capabilities, and qualifications held by the business. This goodwill balance is not deductible for tax purposes.
Our evaluation of the intangible assets acquired with VES identified three assets. The assets were valued using methods which required a number of estimates and, accordingly, they are considered Level 3 measurements within the Accounting Standard Codification No. 820 (ASC 820) fair value methodology.
•Customer relationships represent the value of the existing contractual relationships with the U.S. federal government. These were valued using the excess earnings method, which required us to utilize estimated future revenues and earnings from contracts and an appropriate rate of return.
•VES maintains a provider network of third-party providers that assist in the performance of their clinical services. This network was valued using the cost method and income approach, which included both the cost of recreating such a network and the profits foregone during the time which would be required to recreate the network and an appropriate rate of return.
•VES maintained proprietary technology which interacted with U.S. federal government systems, facilitated the transmission of examination data, and supported the performance of the contracts. We valued the technology using a relief-from-royalty method, which required us to estimate future revenues and an arm's length royalty rate that a third-party provider might use to supply this service and an appropriate rate of return.
Table 6.2: VES Intangible Asset Values and Useful Lives
Estimated Straight-Line Useful Life Estimated Fair Value
(in thousands)
Customer contracts and relationships 12 years $ 580,000 
Provider network 12 years 57,000 
Technology-based intangible assets 12 years 27,000 
Total intangible assets $ 664,000 
In connection with certain liabilities acquired in the VES acquisition, we established a liability of $12.0 million for a billing dispute between VES and its customer relating to prior year billings. Our exposure was partially offset by an indemnification asset of $6.0 million. During the first nine months of fiscal year 2022, we paid the liability and recovered the indemnification asset. At acquisition, we established a tax liability of $12.3 million for uncertain tax positions within VES, partially offset by another indemnification asset of $7.2 million.
Connect Assist Holdings Limited ("Connect Assist")
On September 14, 2021, we acquired 100% of the share capital of Connect Assist for an estimated purchase price of $19.4 million (£14.4 million British Pounds). We acquired this business to improve our contact center services and qualifications within the United Kingdom. The business was integrated into our Outside the U.S. Segment. We completed our assessment of all acquired assets and liabilities assumed, with the exception of tax balances. We recorded estimated goodwill and intangible assets of $11.3 million and $7.7 million, respectively, related to the acquisition.
Aidvantage
On October 6, 2021, we completed the acquisition of the student loan servicing business from Navient, rebranded as Aidvantage. The purchase price consideration is contingent upon future volumes, with a maximum payment of $65.0 million. The final payment is uncertain as there are a number of potential outcomes. We estimated the fair value of this liability, based upon a probability weighted assessment of the potential outcomes, of $18.5 million. We update this liability each quarter as changes are made to our estimate of fair value. These changes are recorded through our statement of operations. If our obligation is less than anticipated, this will result in a benefit to our earnings. The obligation may be higher, either because the number of student loans we are servicing increases or if the contractual relationship we have acquired is extended beyond its current anticipated end date of December 31, 2023. In that instance, we would record an expense to earnings which we would anticipate being offset by additional benefits from the contract. However, the timing of the adjustment to the obligation and the anticipated financial benefits would be unlikely to be consistent. We recorded a single intangible asset related to the customer contract and relationship of $16.7 million, which we are amortizing over 27 months. The goodwill balance, representing the difference between the assets acquired and the estimated obligation, represents the assembled workforce, as well as the knowledge base acquired. We completed our assessment of all acquired assets and liabilities assumed. This business is a part of our U.S. Federal Services Segment and supplements our existing portfolio of services to the U.S. Department of Education.
During the three months ended June 30, 2022, we reported $47.5 million and $8.8 million of revenue and gross profit, respectively, from Aidvantage. During the nine months ended June 30, 2022, we reported $129.2 million and $7.5 million of revenue and gross profit, respectively, from Aidvantage. Since acquisition, we have adjusted the fair value of the liability each quarter to reflect the passage of time. During the third quarter of fiscal year 2022, we recorded a benefit of $2.3 million related to the decline in our anticipated obligation to the sellers; this was recorded in our selling, general and administrative expenses. At June 30, 2022, our contingent consideration liability is $16.4 million.
BZ Bodies Limited ("BZB")
On January 31, 2022, we acquired 100% of the share capital of BZB for an estimated purchase price of $2.9 million (£2.2 million British Pounds), which includes an estimate of contingent consideration payable upon future performance. BZB provides weight management services for adults, children and vulnerable groups in the United Kingdom. We acquired this business to complement our services within the United Kingdom. The business was integrated into our Outside the U.S. Segment. We are still in the process of finalizing the allocation of assets acquired and liabilities assumed. We recorded estimated goodwill and intangible assets of $1.5 million and $1.3 million, respectively, related to the acquisition. During the three and nine months ended June 30, 2022, we reported revenue of $1.6 million and $2.7 million and gross profit of $0.7 million and $1.3 million, respectively, from BZB.
Stirling Institute of Australia Pty Ltd ("Stirling")
On June 1, 2022, we acquired 100% of the share capital of Stirling for an estimated purchase price of $4.2 million (A$5.8 million Australian Dollars). Stirling provides vocational training to Australians seeking to improve their knowledge and qualifications. We acquired this business to complement our existing employment services. The business was integrated into our Outside the U.S. Segment. We are in the process of finalizing the allocation of assets acquired and liabilities assumed. We recorded estimated goodwill and intangible assets of $2.2 million and $1.9 million, respectively, related to the acquisition. During the three and nine months ended June 30, 2022, we reported revenue of $0.3 million and gross profit of $0.2 million, respectively, from Stirling.