Guild Holdings Company Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

ACQUISITION

ACQUISITION

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

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 (“ASC 805”) “Business Combinations”, 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.

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.

Goodwill was 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 Condensed Consolidated Statements of Income.

Measurement period adjustments were recorded in the second quarter of 2022 and resulted in an immaterial decrease to goodwill and increase to income tax receivable (see Note 10). The following summarizes the estimated fair values of the identifiable assets acquired and liabilities assumed as of the acquisition date, including measurement period adjustments:


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	36,923
Total assets acquired	644,357

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	154,431

Goodwill	$	110,600

The fair value of the Company's Class A common stock issued was determined based on the closing market price of the Company's common shares on June 30, 2021, the last price 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 acquisition of RMS has been fully integrated with the Company's existing operations; therefore, post-acquisition revenues and net income are not available. Supplementary pro forma financial information related to the acquisition is not included because the impact to the Company's Condensed Consolidated Statements of Income is not material.