Marcus & Millichap, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Acquisitions, Goodwill and Other Intangible Assets

Acquisitions, Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2020

Acquisitions, Goodwill and Other Intangible Assets

6.	Acquisitions, Goodwill and Other Intangible Assets

During 2020, the Company expanded its network of its real estate sales and financing professionals and provided further diversification to its real estate brokerage and financing services.

The Company completed acquisitions of

four

businesses

that were accounted for as business combinations, and the results have been included in the consolidated financial statements beginning on the respective acquisition dates. Aggregate terms of these acquisitions included: (i) cash paid at closing of approximately

$17.9 million (exclusive of cash acquired) (ii) the fair value of contingent consideration of $2.9 million with payments conditioned upon achieving certain financial metrics, and (iii) the fair value of deferred consideration, settled in cash or stock of $14.2 million with the only remaining condition on such payments being the passage of time. Contingent consideration and deferred consideration represent noncash investing activity and are included in accounts payable and other liabilities and other liabilities captions in the consolidated balance sheets. See Note 10 – “Fair Value Measurements” for additional information on contingent and deferred consideration.

Based on preliminary purchase price allocations, $15.7 million was allocated to the fair values of intangible assets, $1.8 million was allocated to the fair values of other net assets (assumed assets less acquired liabilities), $0.8 million was allocated to the fair values of unfavorable ROU asset, with the remainder of $18.3

million allocated to goodwill. The estimated fair values and allocation of consideration are preliminary, based upon information available at the time of closing as the Company continues to evaluate underlying inputs and assumptions. Accordingly, these provisional values may be subject to adjustments during the measurement period, not to exceed one year, based upon new information obtained about facts and circumstances that existed at the time of closing.

The Company recognized $1.3 million of acquisition-related costs that were expensed as incurred during the year ended December 31, 2020, which was included in selling, general and administrative expense in the accompanying consolidated statements of net and comprehensive income.

The goodwill recorded as part of the acquisitions primarily arose from the acquired assembled workforce and brokerage and financing sales platforms. The Company expects all of the goodwill to be tax deductible, with the tax-deductible amount of goodwill related to the contingent and deferred consideration to be determined once the cash payments are made to settle any

contingent and deferred consideration. The goodwill resulting from acquisitions is allocated to the Company’s one RU.

Goodwill and intangible assets, net consisted of the following (in thousands):


	December 31, 2020							December 31, 2019
	Gross Carrying Amount		Accumulated Amortization			Net Book Value		Gross Carrying Amount		Accumulated Amortization			Net Book Value
Goodwill and intangible assets:
Goodwill	$	33,375	$	—		$	33,375	$	15,072	$	—		$	15,072
Intangible assets (1)		24,745		(6,067	)		18,678		9,050		(1,810	)		7,240

	$	58,120	$	(6,067	)	$	52,053	$	24,122	$	(1,810	)	$	22,312

(1)	Total weighted average amortization period was 5.57 years and 4.37 years as of December 31, 2020 and 2019, respectively.

The changes in the carrying amount of goodwill consisted of the following (in thousands):


	Years Ended December 31,
	2020		2019
Beginning balance	$	15,072	$	11,459
Additions from acquisitions		18,303		3,613
Impairment losses		—		—

Ending balance	$	33,375	$	15,072

Estimated amortization expense for intangible assets by year for the next five years and thereafter consisted of the following (in thousands):


	Year Ended December 31,
2021	$	4,002
2022		3,584
2023		3,529
2024		3,016
2025		2,764
Thereafter		1,783

	$	18,678

The Company evaluates goodwill for impairment annually in the fourth quarter. In addition to the annual impairment evaluation, the Company evaluates at least quarterly whether events or circumstances have occurred in the period subsequent to the annual impairment testing which indicate that it is more likely than not an impairment loss has occurred. The Company evaluates its intangible assets that have finite useful lives whenever an event or change in circumstances indicates that the carrying value of the asset may not be recoverable.

As of December 31, 2020, the Company considered the impact of

COVID-19

pandemic and evaluated its goodwill and intangible assets for impairment testing. The Company considered qualitative and quantitative factors, including the impact from the

COVID-19

induced economic slowdown and current projected recovery timeframes. The Company estimated the recoverability of the intangible assets by comparing the carrying amount of each asset to the future undiscounted cash flows that the Company expects the asset to generate. The sum of the undiscounted expected future cash flows was greater than the carrying amount of the intangible assets. The Company concluded that as of December 31, 2020, there was no impairment of its goodwill and intangible assets.