Quarterly report pursuant to Section 13 or 15(d)

Business Combinations

v3.22.2.2
Business Combinations
 9 Months Ended
Sep. 30, 2022
Business Combination and Asset Acquisition [Abstract]  
Business Combinations Business Combinations
On January 18, 2022, the Company acquired 100% of Hanover Family Builders, LLC (“Hanover”), a Florida-based homebuilder, for an aggregate cash purchase price, net of working capital adjustments, of $262.6 million. The aggregate purchase price included a pay-off of $69.3 million related to debt held by Hanover and a payment of $15.6 million for land-related deposits. The total assets of Hanover included approximately 20 development projects and 3,800 lots in various stages of development. The determination of the final purchase accounting allocation related to the working capital calculations and resulting goodwill are in process as of the date the consolidated financial statements were issued.
In accordance with ASC 805, the assets acquired and liabilities assumed from the acquisition of Hanover were measured and recognized at fair value as of the date of the acquisition to reflect the purchase price paid.
Acquired inventories consist of land, land deposits, and work in process inventories. For acquired land and land options, the Company typically utilizes, with the assistance of a third-party appraiser, a sales comparison approach. For work in process inventories, the Company estimates the fair value based upon the stage of production of each unit and a gross margin that management believes a market participant would require to complete the remaining development and requisite selling efforts. On the acquisition date, the stage of production for each lot ranged from recently started lots to fully completed homes. The intangible asset acquired relates to the Hanover trade name, which is estimated to have a fair value of $1.6 million and is being amortized over one year. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed and relates primarily to the assembled workforce and business synergies. Goodwill of $44.2 million was preliminarily recorded on the consolidated balance sheets as a result of this transaction and is expected to be deductible for tax purposes over 15 years. The acquired goodwill is included in the Florida reporting segment in Note 12, Segment Reporting. The Company incurred transaction related costs of less than $0.1 million and $0.7 million related to the Hanover acquisition during the three and nine months ended September 30, 2022, respectively.
The Company's results of operations include homebuilding revenues from the Hanover acquisition of $72.2 million and $231.5 million for the three and nine months ended September 30, 2022, respectively. The accompanying results of operations also include pretax income of $4.5 million and $8.6 million from the Hanover acquisition during the three and nine months ended September 30, 2022. respectively. The pretax income is inclusive of purchase price accounting and an allocation of corporate general and administrative expenses.
The following is a summary of the allocation of the purchase price based on the fair value of assets acquired and liabilities assumed (dollars in thousands).
Assets Acquired
Cash $ 3,857 
Real estate inventories 232,071 
Goodwill 44,182 
Trade name 1,590 
Other assets 378 
Total assets $ 282,078 
 
Liabilities Assumed
Accounts payable $ 6,329 
Accrued expenses 13,165 
Total liabilities 19,494 
Net assets acquired $ 262,584 
On May 4, 2021, the Company acquired 100% of Mercedes Premier Homes, LLC (also known as Vintage Estate Homes, LLC, or “Vintage”), a Florida- and Texas-based homebuilder, for cash consideration of approximately $54.6 million. In addition, the Company assumed $32.1 million of debt, of which it paid down $3.8 million in connection with the acquisition. Total assets included approximately 20 development projects and 1,800 lots in various stages of development. The intangible asset acquired relates to the Vintage trade name, which was estimated to have a fair value of $1.6 million and was amortized over one year. Goodwill of $3.8 million was recorded on the consolidated balance sheets as a result of this transaction and is expected to be deductible for tax purposes over 15 years. The acquired goodwill is included in the Florida reporting segment. The Company incurred transaction costs of $0.3 million and $0.8 million related to the Vintage acquisition during the three and nine months ended September 30, 2021.
The following is a summary of the allocation of the purchase price based on the fair value of assets acquired and liabilities assumed (dollars in thousands).

Assets Acquired
Cash $ 10,063 
Real estate inventories 93,699 
Goodwill 3,752 
Trade name 1,550 
Other assets 3,956 
Total assets $ 113,020 
 
Liabilities Assumed
Accounts payable $ 1,641 
Accrued expenses 24,660 
Notes payable 32,119 
Total liabilities 58,420 
Net assets acquired $ 54,600 
Unaudited Pro Forma Financial Information
Unaudited pro forma revenue and net income (loss) for the following periods presented give effect to the results of the acquisitions of Hanover and Vintage as though the respective acquisition dates were as of January 1, 2021 and January 1, 2020, the beginning of the year preceding the respective acquisitions. Unaudited pro forma net income (loss) adjusts the operating results of Hanover and Vintage to reflect the additional costs that would have been
recorded assuming the fair value adjustments had been applied as of the beginning of the year preceding the year of acquisition including the tax-effected amortization of the acquired trade name and transaction related costs.
Three Months Ended September 30, Nine Months Ended September 30,
2022 2021 2022 2021
(dollars in thousands)
Revenue $ 335,585  $ 266,786  $ 1,025,600  $ 818,382 
Pretax income (loss) 35,935  1,586  108,188  (22,298)
Provision (benefit) for income taxes 4,858  (3,811) 28,339  (4,025)
Net income (loss) $ 31,077  $ 5,397  $ 79,849  $ (18,273)