Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.24.3
Fair Value Measurements
 9 Months Ended
Sep. 30, 2024
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Accounting standards establish a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair values as
follows:
Level 1: Observable inputs such as quoted prices for identical assets in active markets;
Level 2: Inputs other than quoted prices for identical assets in active markets, that are observable either directly or
indirectly; and
Level 3: Unobservable inputs in which there is little or no market data which requires the use of valuation techniques and
the development of assumptions.
The level in the fair value hierarchy within which the fair value measurement is classified is determined based on the
lowest level of input that is significant to the fair value measure in its entirety.
The carrying amount of financial assets and liabilities reported in the Consolidated Balance Sheets for commissions and
fees receivable – net, other current assets, accounts payable, short-term debt, and other accrued liabilities as of
September 30, 2024 and December 31, 2023, approximate fair value because of the short-term duration of these
instruments. The fair value of long-term debt, including the Term Loan, Senior Secured Notes, the units subject to
mandatory redemption, and any current portion of such debt, was $2,692.1 million and $1,976.5 million as of
September 30, 2024 and December 31, 2023, respectively. The fair value of the Term Loan and Senior Secured Notes
would be classified as Level 2 in the fair value hierarchy and the units subject to mandatory redemption would be classified
as Level 3. See Note 7, Debt, for the carrying values of the Company’s debt.
Derivative Instruments
Deal-Contingent Foreign Currency Forward
The Company entered into the Deal-Contingent Forward to manage the risk of appreciation of the GBP-denominated
purchase price of the Castel acquisition. The fair value of the Deal-Contingent Forward was determined by comparing the
contractual foreign exchange rates to forward market rates for various future dates, probability weighted for when the
acquisition was anticipated to close, and discounted to the valuation date. The lowest level of inputs used that are
significant in determining the fair value were considered Level 3 inputs. See Note 11, Derivatives, for further information
on the Deal-Contingent Forward.
Interest Rate Cap
The Company uses an interest rate cap to manage its exposure to interest rate fluctuations related to the Company’s Term
Loan. The fair value of the interest rate cap is determined using the market standard methodology of discounting the future
expected cash receipts that would occur if variable interest rates rise above the strike rate of the cap. The variable interest
rates used in the calculation of projected receipts on the cap are based on an expectation of future interest rates derived
from observable market interest rate curves and volatilities. The inputs used in determining the fair value of the interest rate
cap are considered Level 2 inputs. See Note 11, Derivatives, for further information on the interest rate cap.
Contingent Consideration
The fair values of contingent consideration and contingently returnable consideration are based on the present value of the
future expected payments to be made to the sellers and to be received from the sellers, respectively, of certain acquired
businesses in accordance with the provisions outlined in the respective purchase agreements, which are Level 3 fair value
measurements. In determining fair value, the Company estimates cash payments and receipts based on management’s
financial projections of the performance of each acquired business relative to the formula specified by each purchase
agreement. The Company utilizes Monte Carlo simulations to evaluate financial projections of each acquired business. The
Monte Carlo models consider forecasted revenue and EBITDA and market risk-adjusted revenue and EBITDA, which are
run through a series of simulations. As of September 30, 2024, the models used risk-free rates, expected volatility, and a
credit spread that ranged from 4.0% to 5.4%, 6.9% to 18.7%, and 1.0% to 2.4%, respectively. As of December 31, 2023,
the models used risk-free rates, expected volatility, and a credit spread that ranged from 4.9% to 5.4%, 7.0% to 21.7%, and
3.3% to 4.2%, respectively. The Company discounts the expected payments created by the Monte Carlo model to present
value using a risk-adjusted rate that takes into consideration the market-based rates of return that reflect the ability of the
acquired entity to achieve its targets. The discount rate ranges used to present value the cash payments were 5.2% to 6.8%
and 8.3% to 9.1% as of September 30, 2024 and December 31, 2023, respectively.
Each period, the Company revalues the contingent consideration and contingently returnable consideration associated with
certain prior acquisitions to their fair value and records the related changes of the fair value in Change in contingent
consideration in the Consolidated Statements of Income (Loss). Changes in contingent consideration result from changes in
the assumptions regarding probabilities of successful achievement of related EBITDA and revenue milestones, the
estimated timing in which milestones are achieved, and the discount rate used to estimate the fair value of the liability.
Contingent consideration may change significantly as the Company’s revenue growth rate and EBITDA estimates evolve
and additional data is obtained, impacting the Company’s assumptions. The use of different assumptions and judgments
could result in a different estimate of fair value which may have a material impact on the results from operations and
financial position. See Note 3, Mergers and Acquisitions, for further information on contingent consideration.
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring
basis by fair value hierarchy input level:
September 30, 2024
December 31, 2023
Level 1
Level 2
Level 3
Level 1
Level 2
Level 3
Assets
Interest rate cap
$—
$13,196
$—
$—
$29,667
$—
Contingently returnable
consideration
—
—
5,587
—
—
—
Liabilities
Contingent consideration
—
—
150,131
—
—
41,050
Deal-Contingent Forward
—
—
—
—
—
852
Total assets and liabilities
measured at fair value
$—
$13,196
$155,718
$—
$29,667
$41,902
Contingently returnable consideration of $1.3 million and $4.3 million was recorded in Other current assets and Other non-
current assets, respectively, on the Consolidated Balance Sheets as of September 30, 2024. Contingent consideration of
$44.1 million was recorded in Accounts payable and accrued liabilities on the Consolidated Balance Sheets as of
September 30, 2024. Contingent consideration of $106.0 million and $41.1 million was recorded in Other non-current
liabilities on the Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023, respectively.
Level 3 Assets and Liabilities Measured at Fair Value
The following is a reconciliation of the beginning and ending balances of the Level 3 assets and liabilities measured at fair
value:
Three Months Ended
September 30,
Nine Months Ended
September 30,
2024
2023
2024
2023
Assets
Balance at beginning of period
$4,868
$—
$—
$—
Newly established assets due to acquisitions
—
—
4,868
—
Total gains included in earnings
431
—
431
—
Total gains included in OCI
288
—
288
—
Balance at end of period
$5,587
$—
$5,587
$—
Liabilities
Balance at beginning of period
$44,971
$25,290
$41,902
$29,251
Newly established liability due to acquisitions
103,769
8,091
103,769
8,091
Total losses included in earnings
1,391
2,637
8,901
6,588
Settlements
—
—
(5,384)
(7,912)
Acquisition measurement period adjustments
—
—
943
—
Balance at end of period
$150,131
$36,018
$150,131
$36,018
For the nine months ended September 30, 2024, $5.4 million related to the loss on the settlement of the Deal-Contingent
Forward is presented in the operating section of the Consolidated Statements of Cash Flows. For the nine months ended
September 30, 2023, $3.4 million and $4.5 million settlements of contingent consideration are presented in the operating
and financing sections, respectively, of the Consolidated Statements of Cash Flows.