Marcus & Millichap, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Acquisitions, Goodwill and Other Intangible Assets

Acquisitions, Goodwill and Other Intangible Assets

6 Months Ended

Jun. 30, 2020

Acquisitions, Goodwill and Other Intangible Assets

6.	Acquisitions, Goodwill and Other Intangible Assets

During the six months ended June 30, 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 an acquisition of two businesses that were accounted for as business combination

and the results have been included in the condensed consolidated financial statements beginning on the acquisition date

. Aggregate terms of these acquisitions included: (i) cash paid at closing of approximately $11.8 million, net of cash received, (ii) the fair value of contingent consideration of $1.8 million using a probability-weighted, discounted cash flow estimate on achieving certain financial metrics

and (iii) the fair value of deferred consideration of $3.9 million using a discounted cash flow estimate with

the

only remaining condition on such payments

being

the passage of time. Contingent consideration and deferred consideration are included in accounts payable and other liabilities and other liabilities captions in the condensed consolidated balance sheets. See Note 10 – “Fair Value Measurements” for additional information on contingent and deferred consideration.

Based on preliminary purchase price allocations, $8.3 million was allocated to the fair values of intangible assets with the remainder of $9.2 million allocated to goodwill. The Company recorded acquisition related costs of $446,000 and $94,000 for the three months ended June 30, 2020 and 2019, respectively, and $1.1 million and $140,000 for the six months ended June 30, 2020 and 2019, respectively.

These amounts are included in selling, general and administrative expense in the accompanying condensed consolidated statements of net and comprehensive income.

The goodwill recorded as part of the acquisitions primarily arises 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 reporting unit.

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


	June 30, 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	$	24,319	$	—		$	24,319	$	15,072	$	—		$	15,072
Intangible assets (1)		17,291		(3,781	)		13,510		9,050		(1,810	)		7,240

	$	41,610	$	(3,781	)	$	37,829	$	24,122	$	(1,810	)	$	22,312

(1)	Total weighted average amortization period was 5.08 years and 4.37 years as of June 30, 2020 and December 31, 2019, respectively.

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


	Six Months Ended June 30,
	2020		2019
Beginning balance	$	15,072	$	11,459
Additions from acquisitions		9,247		—
Impairment losses		—		—

Ending balance	$	24,319	$	11,459

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


	June 30, 2020
Remainder of 2020	$	1,924
2021		2,972
2022		2,585
2023		2,582
2024		2,013
Thereafter		1,434

	$	13,510

The Company evaluates goodwill and intangible assets 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. As of June 30, 2020, the Company considered the impact of

COVID-19

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

COVID-19

induced economic slowdown and current projected recovery timeframes and their impact on goodwill and intangible assets. The Company concluded that as of June 30, 2020, there was no impairment of its goodwill and intangible assets.