Business combinations and disposals
|12 Months Ended|
Sep. 30, 2020
|Business Combinations [Abstract]|
|Business combinations and disposals||Business combinations and disposals
Citizen engagement centers
On November 16, 2018, we acquired General Dynamics Information Technology's citizen engagement centers business, pursuant to an asset purchase agreement dated October 5, 2018. The assets acquired included existing contracts, contractual relationships and bids for contracts submitted prior to the acquisition date, as well as interests in leased properties, fixed assets, working capital and intangible assets. This acquisition strengthened our position in the administration of federal government programs. This business was integrated into our U.S. Federal Services Segment. The contract provided for a purchase price of $400 million adjusted for the net working capital in excess of or less than an agreed-upon target representing an estimate of normalized net working capital. The working capital balance at the acquisition date was higher than this estimate, and, accordingly, we incurred a purchase price of $430.7 million.
As part of the acquisition, we incurred acquisition-related expenses, including legal, accounting and other consultant services. We recorded selling, general and administrative expenses of $2.7 million and $0.5 million in the years ended September 30, 2019 and 2018, respectively.
We considered this transaction to be an acquisition of a business. The valuation of the assets acquired and liabilities assumed was as follows.
Goodwill represents the value of the assembled workforce and the enhanced knowledge, capabilities and qualifications held by the business. This goodwill balance is expected to be deductible for tax purposes.
The fair value of the intangible assets acquired was estimated to be $122.3 million, representing customer relationships. We estimated this balance using the excess earnings method and used a number of estimates, including expected future earnings from the acquired business and an appropriate expected rate of return. We assumed useful economic life of 10 years for most contracts, representing our expectation of the period over which we will receive the benefit. Typically, our customer relationships are based upon the provision of services to our customers on a daily or monthly basis and, although contracts are frequently rebid, we believe that an incumbent provider typically enjoys significant competitive advantages. In reviewing the contract portfolio, we allocated a shorter life to a contract that pertains to the U.S. decennial census. This contract requires managing a significant ramp-up and ramp-down of work over the census cycle. As much of the benefit from this contract is anticipated to occur through fiscal years 2019 and 2020, we utilized a shorter asset life for this customer relationship. The average weighted intangible asset life is 7.6 years and amortization is being recorded on a straight-line basis.
From the acquisition date through September 30, 2019, the acquired business contributed $615.1 million and $117.4 million of revenue and gross profit, respectively. Given the integration of the acquired business into our cost structure, it is impracticable to calculate the effect of the acquisition on operating income.
The following table presents certain results for the years ended September 30, 2019 and 2018, as though the acquisition had occurred on October 1, 2017. The pro forma results below eliminate intercompany transactions, include amortization charges for acquired intangible assets, eliminate pre-acquisition transaction costs and include estimates of interest expense, as well as corresponding changes in our tax charge. This pro forma information is presented for information only. For example, this pro forma information does not include any of our synergies but does include, in both years shown, a charge of $18.5 million, related to the amortization of the U.S. Census customer relationship intangible asset. Although the U.S. Census contract commenced prior to October 1, 2017, more of the benefit was recorded in fiscal year 2020. For these and other reasons, this pro forma information is not necessarily indicative of the results if the acquisition had taken place on that date.
GT Hiring Solutions
On August 16, 2019, we acquired 100% of the share capital of GT Hiring Solutions (2005) Inc. (GT Hiring) for $6.2 million (8.2 million Canadian Dollars). GT Hiring provides employment services in British Columbia. We acquired GT Hiring to enhance the reach and capabilities of our Canadian employment services, and, accordingly, the business was integrated into our Outside the U.S. Segment. We recorded estimated goodwill and intangible assets balances of $2.1 million and $2.2 million, respectively, related to this acquisition. The goodwill represents the assembled workforce and enhanced knowledge, experience and reputation we obtained from the acquisition and will not be deductible for tax purposes. The intangible assets represent customer relationships, which will be amortized over seven years.
InjuryNet Australia Pty Limited
On February 28, 2020, we acquired 100% of the share capital of InjuryNet Australia Pty Limited (InjuryNet) for an estimated purchase price of $4.4 million (6.7 million Australian Dollars), which includes acquisition-related contigent consideration estimated at $2.1 million ($3.1 million Australian Dollars) based upon future earnings. The purchase price is subject to adjustment for a working capital true-up and acquisition-related contingent consideration. InjuryNet provides workplace medical services in Australia. 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 $2.6 million and $0.9 million, respectively, related to the acquisition.
Index Root Korea Co. Ltd.
On August 21, 2020, we acquired 100% of the share capital of Index Root Korea Co. Ltd (Index Root) for an estimated purchase price of $5.4 million (6.3 billion South Korean Won), which includes acquisition-related contingent consideration estimated at $0.9 million (1.1 billion South Korean Won) based upon future earnings. We acquired Index Root to expand our geographic presence to South Korea. The business was integrated into our Outside the U.S. Segment. We recorded estimated goodwill and intangible assets of $4.6 million and $1.4 million, respectively, related to the acquisition.
Both our United Kingdom Remploy subsidiary and our business in Saudi Arabia had been partially owned by other parties. During fiscal year 2019, we acquired the share capital held by our partners for $0.4 million and $0.2 million, respectively.
Q2 Administrators, LLC
On May 1, 2020, we sold Q2 Administrators LLC, a wholly-owned subsidiary, for $3.1 million, resulting in a gain of $1.7 million. We made the sale to avoid a possible or perceived conflict arising from a new contract.
Goodwill and intangible assets
Changes in goodwill for the years ended September 30, 2020 and 2019, are shown below.
There were no impairment charges to our goodwill.
Although the citizen engagement center business was integrated into our U.S. Federal Services Segment, the acquisition provided benefits across all three segments. The most significant contracts acquired are cost-plus arrangements, which allow us to recover a greater share of our corporate overhead. Accordingly, we allocated goodwill based upon an estimate of the relative fair value of the benefit to each segment.
The following table sets forth the components of intangible assets:
As of September 30, 2020, our intangible assets have a weighted average remaining life of 9.0 years, comprising 9.0 years for customer contracts and relationships and 3.1 years for technology-based intangible assets. The estimated future amortization expense for the next five years for the intangible assets held by the Company as of September 30, 2020, is as follows:
The entire disclosure for business combinations, including leverage buyout transactions (as applicable), and divestitures. This may include a description of a business combination or divestiture (or series of individually immaterial business combinations or divestitures) completed during the period, including background, timing, and assets and liabilities recognized and reclassified or sold. This element does not include fixed asset sales and plant closings.
Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef