Bridge Investment Group Holdings Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

BUSINESS COMBINATION AND GOODWILL

BUSINESS COMBINATION AND GOODWILL

9 Months Ended

Sep. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Acquisition of Newbury Partners LLC

On February 13, 2023, affiliates of Bridge entered into a definitive agreement to purchase substantially all of the assets of Newbury Partners LLC (“Newbury”), a Delaware limited liability company, pursuant to the terms of an Asset Purchase Agreement (the “Asset Purchase Agreement”) by and among the Operating Company, Newbury Partners-Bridge LLC, a Delaware limited liability company (an indirect wholly owned subsidiary of the Operating Company, the “Buyer”), Newbury, Richard Lichter and RLP Navigator LLC, a Delaware limited liability company (collectively, the “Newbury Holders”). Bridge acquired substantially all of Newbury’s assets and assumed certain of Newbury’s liabilities for total consideration of $320.1 million paid in cash, subject to certain purchase price adjustments as set forth in the Asset Purchase Agreement (the “Newbury Acquisition”). The transaction closed on March 31, 2023 (the “Acquisition Date”).

Subsequent to the Acquisition Date, the Company made certain measurement period adjustments to equity method investments acquired from Newbury in order to reflect asset valuations as of the Acquisition Date and to deferred revenue for actual fund management fees collected, and included the related adjustments to non-controlling interest and goodwill. As of September 30, 2023, the estimated fair values and allocation of consideration are preliminary as the Company continues to evaluate the underlying inputs and assumptions. Accordingly, these provisional values may be subject to adjustment during the measurement period, not to exceed one year from the Acquisition Date, based upon new information obtained about facts and circumstances that existed at the time of closing (in thousands).


Consideration
Cash	$	319,364
Liabilities assumed	736
Total consideration	$	320,100

Assets acquired and liabilities assumed
Net tangible acquired assets			$	80,081
Trade name(1)			3,000
Client relationship(1)			48,000
Management contracts(1)			98,000
Fair value of net identifiable assets acquired			$	229,081
Non-controlling interest(1)			(86,365)
Goodwill(1)			177,384
Total assets acquired and liabilities assumed, net			$	320,100

(1)The fair value was determined using Level 3 assumptions.

In connection with the Newbury Acquisition, the Company expensed the transaction costs of $3.5 million, which is included in general and administrative expenses on the condensed consolidated statement of operations for the nine months ended September 30, 2023.

In connection with the Newbury Acquisition, the Company allocated $98.0 million, $48.0 million, and $3.0 million of the purchase price to the fair value of management contracts, client relationships and trade name, respectively. The fair value of management contracts was estimated based upon estimated net cash flows generated from those contracts, discounted at 16.0%, with remaining lives estimated between 4 and 10 years for fund management contracts. The fair value of client relationships was estimated based upon estimated net cash flows expected to be generated under future management contracts, discounted at 22%, with a remaining estimated useful life of 14 years. The trade name was valued using a relief-from-royalty method, based on estimated savings from an avoided royalty rate of 1% on expected revenue discounted at 21.0%, with an estimated useful life of 10 years.

The carrying value of goodwill associated with Newbury was $177.4 million as of the Acquisition Date and is attributable to expected synergies and the assembled workforce of Newbury.

As part of the Newbury Acquisition, approximately $0.7 million of liabilities were assumed by the Operating Company as part of the total consideration. As of September 30, 2023, $0.5 million of the assumed liabilities remained outstanding, which is included in accrued compensation and benefits on the condensed consolidated balance sheet for the period then ended.

Supplemental information on a pro forma basis, as if the Newbury Acquisition had been consummated on January 1, 2022, is as follows (in thousands):


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Total revenues and investment (loss) income	$	76,093	$	127,869	$	162,391	$	532,594
Net income (loss) attributable to Bridge Investment Group Holdings Inc.	294		4,359		(4,749)		25,782

The unaudited pro forma supplemental information is based on estimates and assumptions, which the Company believes are reasonable. These results are not necessarily indicative of the Company’s consolidated financial condition or statements of operations in future periods or the results that actually would have been realized had the Company and Newbury been a combined entity during the periods presented. These pro forma amounts have been calculated after applying the following adjustments that were directly attributable to the Newbury Acquisition:

•adjustments to reflect the exclusion of accrued performance allocation income and related compensation for certain Newbury funds that were not acquired as part of the Newbury Acquisition;

•adjustments to include the impact of the additional amortization that would have been charged assuming the fair value adjustments to intangible assets had been applied on January 1, 2022, together with the consequential tax effects;

•adjustments to reflect compensation agreements and profits interests awards granted to certain transferred employees, as if they were granted on January 1, 2022;

•adjustments to include interest expense related to the 2023 Private Placement Notes and the draw on our Credit Facility (as defined herein) as if it had been consummated on January 1, 2022 and adjustments to exclude interest expense related to the line of credit that was not assumed by the Company in the Newbury Acquisition;

•adjustments to reflect the tax effects of the Newbury Acquisition and the related adjustments as if Newbury had been included in the Company’s results of operations as of January 1, 2022; and

•adjustments to reflect the pro-rata economic ownership attributable to Bridge.

Included in the pro forma financial information for the nine months ended September 30, 2023 is $3.5 million and $4.6 million of transaction costs incurred by the Company and Newbury, respectively. There were no transaction costs incurred for the three months ended September 30, 2023 or the three or nine months ended September 30, 2022, respectively.

Acquisition of Gorelick Brothers Capital

On January 31, 2022, the Company acquired certain assets of Gorelick Brothers Capital (“GBC”), including a 60% interest in GBC’s asset and property management business (the “GBC Acquisition”). The 60% interest in GBC’s asset and property management business was acquired by the Operating Company for consideration of $30.0 million (total implied value of $50.0 million) with 50% paid in cash and 50% with 694,412 Class A Units of the Operating Company, which was based on a 15-day average of the Company’s closing stock price prior to the closing of the transaction. Upon consummation of the GBC Acquisition, (i) the GBC team and Bridge launched a single-family rental (“SFR”) strategy on the Bridge platform, (ii) Bridge and the former key principals of GBC formed and jointly own a new SFR investment manager within Bridge, and (iii) Bridge and the former GBC principals completed a $660.0 million recapitalization of a portfolio comprising more than 2,700 homes in 14 markets, concentrated in the Sunbelt and certain Midwest markets of the United States. The Operating Company now indirectly owns a 60% majority of the newly created Bridge SFR investment manager, and the former principals of GBC own the remaining 40%.

A majority of the fair value of the purchase consideration was attributed to goodwill, with synergies expected to accrue from the vertically integrated Bridge SFR investment strategy. As part of the transaction, approximately $1.0 million of liabilities were assumed by the Operating Company as consideration for the purchase price. As of December 31, 2022, the assumed liabilities had been paid. The number of Class A Units of the Operating Company that were transferred to GBC as a portion of the total consideration was based on an average closing price of the Company’s Class A common stock from January 13, 2022 through January 27, 2022. Class A Units of the Operating Company are exchangeable on a one-for-one basis with our Class A common stock, subject to certain conditions.

The following table summarizes the total consideration for the GBC Acquisition and the related purchase price allocation for the assets acquired, liabilities assumed and non-controlling interests (in thousands):


Consideration
Cash	$	15,089
Class A Units	14,930
Total consideration for equity interest acquired	$	30,019

Assets acquired, liabilities assumed and non-controlling interests
Cash			$	56
Working capital			623
Trade name(1)			150
In place contracts(1)			3,195
Other liabilities			(104)
Fair value of net assets acquired			$	3,920
Non-controlling interest(1)			(20,053)
Goodwill(1)			46,152
Total assets acquired, liabilities assumed and non-controlling interests, net			$	30,019

(1)The fair value was determined using Level 3 assumptions.

In connection with the GBC Acquisition, the Company expensed the closing costs during the period in which they were incurred, which is included in general and administrative expenses on the condensed consolidated statement of operations for the period then ended.

Intangible assets acquired consist of fund and property management contracts and trade name. The fair value of management contracts was estimated based upon estimated net cash flows generated from those contracts, discounted at 8.5% with remaining lives estimated between five and ten years for fund management contracts and 30 days for property management contracts. The trade name was valued using a relief-from-royalty method, based on estimated savings from an avoided royalty rate of 1.0% on expected revenue discounted at 8.5%, with an estimated useful life of 4 years.