Annual report pursuant to Section 13 and 15(d)

Acquisition

v3.22.0.1
Acquisition
 12 Months Ended
Dec. 31, 2021
Business Combination and Asset Acquisition [Abstract]  
Acquisition ACQUISITION
On July 1, 2021, the Company completed the previously announced acquisition of Residential Mortgage Services Holdings, Inc. ("RMS"). RMS is an independent retail mortgage lender focused in the Northeast. This strategic acquisition expanded Guild’s presence in this region and added experienced loan officers to Guild’s sales force.
The acquisition was accounted for in accordance with ASC 805, whereby the purchase price paid was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed from RMS based on their estimated fair values as of the closing date. Certain amounts are provisional and are subject to change, including final working capital adjustments and goodwill.
Total consideration for the acquisition was approximately $265.0 million. The acquisition was financed with a combination of $185.8 million in cash and the issuance of 996,644 shares of the Company’s Class A common stock. Additionally, RMS shareholders are entitled to contingent consideration based on net income from RMS branch locations for three years following June 1, 2021. These contingent consideration payments will be calculated and paid based on rolling 12-month periods commencing as of June 1, 2021 and ending on the first anniversary of such date, and thereafter on consecutive 12-month periods.
The fair value of the contingent consideration payments on the acquisition date was $64.0 million and was determined utilizing a Monte Carlo model based on estimated future revenues and volatility factors, among other variables and estimates, and has no maximum payment. The contingent consideration payments to the RMS shareholders are not capped; therefore there is no predetermined upper bound to the undiscounted range and an estimate of the range of outcomes cannot be estimated.
The purchase price allocation provided in the table below reflects the preliminary determination of the fair value of assets acquired and liabilities assumed in the acquisition of RMS, with the excess of total consideration over total identifiable net assets recorded as goodwill. Goodwill in the amount of $112.3 million is primarily attributable to the assembled workforce and future growth expected after the acquisition date and will not be deductible for income tax purposes. Goodwill recognized was assigned to our Origination segment. Transaction costs associated with the RMS acquisition were approximately $5.2 million and were expensed as incurred within general and administrative expenses in the Consolidated Statements of Income.
The following summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date. These estimates of fair value of identifiable assets acquired and liabilities assumed are preliminary, pending completion of the final purchase price allocation, primarily in the area of accounting for income taxes and therefore are subject to revisions that may result in adjustments to the values presented below:
Purchase price:
Cash paid at closing of the transaction $ 185,786 
Fair value of Class A common stock issued   15,289 
Estimated fair value of contingent consideration 63,956 
Total purchase price 265,031 
Fair value of assets acquired:
Cash, cash equivalents and restricted cash 85,559 
Mortgage loans held for sale 465,020 
Acquired intangible assets 45,000 
Right-of-use assets 11,855 
Other 35,213 
Total assets acquired 642,647 
Fair value of liabilities assumed:
Warehouse lines of credit 431,175 
Accounts payable and accrued expenses 26,960 
Operating lease liabilities 12,959 
Deferred taxes 16,231 
Other 2,601 
Total liabilities assumed 489,926 
Fair value of net identifiable assets acquired 152,721 
Goodwill $ 112,310 
The fair value of the Company's Class A common stock issued was determined based on the closing market price on June 30, 2021, the last trading day prior to the close of the acquisition.
The identifiable intangible assets of $45.0 million are subject to amortization. The following table summarizes the major classes of acquired intangible assets and their respective estimated fair values and estimated useful lives:
Estimated Fair Value Estimated Useful Life (Years)
Acquired intangible assets:  
Referral network $ 42,300  6
Non-compete agreements 2,700  3
Total acquired intangible assets $ 45,000 
The amount of RMS' net revenue and net income since the July 1, 2021 acquisition date, included in our Consolidated Statement of Income for the year ended December 31, 2021 were as follows:
Net revenue $ 104,557 
Net income $ 12,804 
The following table presents the unaudited pro forma information assuming the acquisition of RMS occurred on January 1, 2020. The unaudited pro forma results reflect after-tax adjustments for amortization of acquired intangible assets and other immaterial adjustments for the effects of purchase accounting. The unaudited pro forma information is presented for information purposes only, and is not necessarily indicative of future operations or results had the acquisition been completed as of January 1, 2020:
Year Ended December 31,
2021 2020
Net revenues $ 1,721,597  $ 1,961,288 
Net income $ 307,854  $ 467,121 
The Company did not have any material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma net revenues and net income.