Annual report pursuant to Section 13 and 15(d)

Business Combinations

v3.22.2.2
Business Combinations
 12 Months Ended
Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Business Combinations BUSINESS COMBINATIONS
VES Group, Inc. (VES)
On May 28, 2021, we 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
(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 that 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 United States 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 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. Since acquisition, we have resolved a number of uncertain tax positions and therefore at September 30, 2022, we retain an estimated indemnification asset of $2.9 million, backed up by an escrow account.
The Federal division of Attain, LLC ("Attain")
On March 1, 2021, we acquired 100% of Attain for a cash purchase price of $419.1 million. This business was integrated into our U.S. Federal Services Segment and is expected to strengthen our position to further design, develop, and deliver more innovative, impactful solutions and drive automation of processes to improve citizen engagement and the delivery of critical federal programs, as well as expand our presence in the U.S. Federal market. We utilized borrowings on the credit facility we had in place at the time, as well as cash on our balance sheet to fund the acquisition.
Table 6.3: Attain Valuation
Allocation of Assets and Liabilities
(in thousands)
Consideration paid:
Cash consideration paid, net of cash acquired $ 419,097 
Assets acquired:
Accounts receivable - billed, billable and unbilled 39,375 
Prepaid expenses and other current assets 926 
Operating lease right-of-use assets 24,960 
Intangible assets 105,000 
Other assets 74 
Total identifiable assets acquired 170,335 
Liabilities assumed:
Accounts payable and other liabilities 28,863 
Operating lease liabilities, less current portion 26,401 
Total identifiable liabilities assumed 55,264 
Net identifiable assets acquired 115,071 
Goodwill 304,026 
Net assets acquired $ 419,097 
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 intangible assets acquired represent customer relationships. We estimated this balance using the excess earnings method (which is a Level 3 measurement within the ASC 820 fair value hierarchy) and used a number of estimates, including expected future revenue and earnings from the acquired business and an appropriate expected rate of return. We have assumed a useful economic life of 10 years, representing our expectation of the period over which we will receive the benefit.
Aidvantage
On October 6, 2021, we completed the acquisition of the student loan servicing business from Navient, rebranded as Aidvantage. 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.
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 identifiable assets acquired and the estimated obligation, represents the assembled workforce, as well as the knowledge base acquired.
During the year ended September 30, 2022, we reported $184.3 million and $28.3 million of revenue and gross profit, respectively, from Aidvantage. Since acquisition, we have adjusted the fair value of the contingent consideration liability each quarter to reflect payments of $1.4 million, interest of $0.3 million, and changes to fair value of $3.6 million, principally related to the decline in our anticipated obligation to the seller. Changes to the fair value of the obligation are recorded in our selling, general and administrative expenses and other expense. At September 30, 2022, our contingent consideration liability is $13.8 million.
Other acquisitions
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 $4.1 million (A$5.7 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 $2.3 million and $1.8 million, respectively, related to the acquisition. During the year ended September 30, 2022, we reported revenue of $1.3 million and gross profit of $0.7 million, respectively, from Stirling.
BZ Bodies Limited ("BZB")
On January 31, 2022, we acquired 100% of the share capital of BZB for a purchase price of $2.5 million (£1.9 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 recorded estimated goodwill and intangible assets of $1.4 million and $1.3 million, respectively, related to the acquisition. During the year ended September 30, 2022, we reported revenue of $3.9 million and $1.8 million gross profit, respectively, from BZB.
Connect Assist Holdings Limited ("Connect Assist")
On September 14, 2021, we acquired 100% of the share capital of Connect Assist Holdings Limited ("Connect Assist") for a purchase price of $20.8 million (£15.5 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 recorded goodwill and intangible assets of $11.1 million and $7.7 million, respectively, related to the acquisition.
Index Root Korea Co. Ltd ("Index Root")
On August 21, 2020, we acquired 100% of the share capital of Index Root Korea Co. Ltd ("Index Root") for a purchase price of $5.4 million (₩6.30 billion South Korean Won), which included acquisition-related contingent consideration estimated at $0.9 million (₩1.10 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 goodwill and intangible assets of $5.1 million and $1.4 million, respectively, related to the acquisition. During fiscal year 2021, we concluded that payment of the contingent consideration was unlikely and, accordingly, a benefit of $1.0 million was recorded within our acquisition expenses.
InjuryNet Australia Pty Limited ("InjuryNet")
On February 28, 2020, we acquired 100% of the share capital of InjuryNet Australia Pty Limited ("InjuryNet") for a purchase price of $4.4 million (A$6.7 million Australian Dollars), which included acquisition-related contingent consideration of $2.1 million (A$3.1 million Australian Dollars) based upon future earnings. The contingent consideration was paid in full during fiscal year 2021. InjuryNet provides workplace medical services in Australia. The business was integrated into our Outside the U.S. Segment. We recorded goodwill and intangible assets of $2.6 million and $0.9 million, respectively, related to the acquisition.