General form of registration statement for all companies including face-amount certificate companies

Business Combinations

v3.23.1
Business Combinations
12 Months Ended
Dec. 31, 2022
Business Combinations  
Business Combinations

Note 5: Business Combinations

P3 Business Combinations

The Business Combinations represented a forward merger and was accounted for using the acquisition method of accounting under which P3 LLC was the acquired company and P3 was the accounting acquirer for financial reporting purposes. This determination is based primarily on the following:

(i) P3 is the sole managing member of P3 LLC subsequent to the Closing, and the managing member conducts, directs, and exercises full control over all activities of P3 LLC. The non-managing members of P3 LLC do not have substantive kick-out or participating rights; and
(ii) No one predecessor stakeholder of P3 had a controlling interest in P3 before or has a controlling interest in the combined company after the Business Combinations. The Business Combinations is not a transaction between entities under common control.

The following summarizes the purchase price consideration:

Equity

    

$

80,301

Fair value of redeemable non-controlling interest

1,807,428

Stock compensation pre-combination services

 

26,313

Cash consideration

18,405

Payment of P3 LLC’s transaction costs

19,152

Total purchase consideration

$

1,951,599

The Company recorded the allocation of the purchase consideration to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the Closing Date. The purchase consideration and allocation includes the fair value of assets and liabilities associated with the Company’s acquisitions of three medical practices in the Predecessor Period of 2021 described below.

The aggregate purchase price consideration for the Business Combinations has been allocated as follows at the acquisition date:

Assets acquired:

Cash

    

$

5,301

Restricted cash

54

Health plan receivables

47,733

Clinic fees and insurance receivables, net

426

Other receivables

1,881

Prepaid expenses and other current assets

939

Property and equipment

7,875

Definite lived intangible assets:

Customer relationships

684,000

Provider network

3,700

Trademarks

147,700

Goodwill

1,278,453

Operating lease right-of-use assets(1)

10,604

Total assets acquired

2,188,666

Liabilities assumed:

Accounts payable and accrued expenses

25,819

Accrued payroll

2,869

Health plan settlements payable

25,008

Claims payable

76,031

Premium deficiency reserve

11,559

Accrued interest

9,269

Current portion of long-term debt

301

Operating lease liability

6,211

Long-term debt, net of current portion

80,000

Total liabilities assumed

237,067

Net assets acquired

$

1,951,599

(1)

Included within other long-term assets on the consolidated balance sheet.

Fair value of property and equipment acquired consists of the following at the acquisition date:

Leasehold improvements

    

$

1,537

Furniture and fixtures

 

1,081

Computer equipment and software

 

3,066

Medical equipment

 

414

Software (development in process)

 

1,777

Total property and equipment

$

7,875

Working capital accounts, property and equipment, and notes receivable were measured at the existing carrying values, which approximated fair values. The fair value of long-term debt was measured at face value, which approximated the fair value. The fair value of customer relationships was measured at the acquisition date under the excess earnings method using Level 3 inputs, such as projected cash flows, annual retention rates attributable to the existing relationships, and a selected discount rate. The fair value of the provider network was measured at the acquisition date under the cost approach using Level 3 inputs, such as estimated direct costs, estimates of allocated overhead costs, and an estimated mark-up percentage to apply to such costs. The fair value of trademarks was measured at the acquisition date under the relief-from-royalty method using Level 3 inputs, such as projected cash flows, benchmark royalty rates, and a selected discount rate. Goodwill arising from the acquisition is primarily attributable to the assembled workforce of P3 LLC and expected future market opportunities. Goodwill of $3.8 million recognized in the Business Combinations is expected to be deductible for tax purposes. The useful life of acquired definite lived intangible assets is 10 years.

Other Acquisitions

The Company acquired 100% of the outstanding equity interests of Medcore Health Plan, Inc. (“Medcore HP”) on December 31, 2021 and the net assets of Omni IPA Medical Group, Inc. (“Omni”) on December 27, 2021 (collectively, the “Medcore Acquisition”). Medcore HP is a health plan licensed under the California Knox-Keen Health Care Service Plan Act of 1975 and Omni is an independent practice association located in California. Omni serves as Medcore HP’s contracted and fully delegated physician network providing medical services to Medcore HP’s patients and members. Due to the extensive inter-reliance of these two businesses, the Company accounted for the purchases as a single, combined business. The total purchase price of $40.0 million includes $3.5 million to be paid to the sellers upon resolution of the assumed claims payable and risk adjustment factor, which is considered to be a Level 3 fair value measurement. The change in fair value of the contingent consideration from the acquisition date to December 31, 2022 was not material. Release of this payment, currently expected in the first half of 2023, is not subject to resolution of a substantive future contingent event and has therefore been included in the total consideration to be transferred. The cash payment, net of cash acquired and the amount retained payment of $3.5 million, was $15.7 million.

The Company also purchased three medical practices during the Predecessor Period of 2021 for a total net cash purchase price of $5.0 million. As referenced above, the assets acquired and liabilities assumed in these acquisitions were included in the purchase consideration and allocation for the Business Combinations.

Goodwill arising from the acquisition is primarily attributable to the assembled workforce and expected future market opportunities. Goodwill of $8.1 million recognized in these other acquisitions is expected to be deductible for tax purposes. The useful life of acquired definite lived intangible assets is 10 years.

The aggregate purchase price consideration of the other acquisitions in 2021 has been allocated as follows at the acquisition dates:

Successor

Predecessor

    

Period

  

  

Period

Assets acquired:

 

  

Cash

$

20,547

$

3

Restricted cash

 

302

 

Health plan receivables

 

5,754

 

Clinic fees and insurance receivables, net

 

141

 

Other receivables

 

726

 

Prepaid expenses and other current assets

 

1,190

 

Property and equipment

 

113

 

6

Definite lived intangible assets:

 

  

 

Customer relationships

 

 

2,046

Payor contracts

4,700

Provider network

 

1,100

 

Trademarks

 

900

 

Indefinite lived intangible assets:

Medical licenses

 

700

 

Goodwill

 

31,298

 

2,934

Total assets acquired

$

67,471

$

4,989

Liabilities assumed:

 

  

 

Accounts payable

 

150

 

Accrued payroll

 

277

 

Health plan settlements payable

 

133

 

Claims payable

 

26,898

 

Total liabilities assumed

 

27,458

 

Net assets acquired

$

40,013

$

4,989

In the third quarter of 2022, the Company acquired two medical practices in separate transactions. The total cash purchase price was $5.5 million, net of cash acquired, and was allocated primarily to goodwill.

Pro Forma Financial Information (Unaudited)

The following unaudited pro forma financial information summarizes the results of operations for the Company as though the Business Combinations and the Medcore Acquisition had occurred on January 1, 2020 and has been derived from the historical consolidated financial statements of the Company’s Predecessor Periods and the Successor Period. The Successor and Predecessor Periods for the year ended December 31, 2021 have been combined. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company.

    

Year Ended

December 31,2021

(Unaudited)

Total operating revenue

$

793,447

Net loss

$

(259,282)

Net loss attributable to non-controlling interest

$

(214,167)

Net loss attributable to controlling interest

$

(45,115)

The unaudited pro forma results reflect the step-up amortization adjustments for the fair value of intangible assets acquired, transaction expenses, accelerated vesting of equity-based compensation, debt discount amortization, and income attributable to non-controlling interest holders.