Subsequent Events | 3 Months Ended | 9 Months Ended |
Sep. 30, 2013 | Sep. 30, 2013 |
RMCO |
Subsequent Events | ' | ' |
5. Subsequent Events | (12) Subsequent Events |
On October 7, 2013, the Corporation completed the IPO of 11,500,000 shares of Class A common stock at a public offering price of $22.00 per share. Certain agreements and transactions associated with the IPO are set forth below: | On October 7, 2013, RE/MAX Holdings, Inc. completed the IPO of 11,500,000 shares of Class A common stock at a public offering price of $22.00 per share. Certain transactions and agreements associated with the IPO are set forth below: |
Reorganization Transactions | Reorganization Transactions |
In connection with the completion of the IPO, RMCO’s Third Amended and Restated Limited Liability Company Agreement, dated as of February 1, 2013 was amended and restated to, among other things, modify its capital structure as follows (collectively referred to as, the “Reorganization Transactions”): | In connection with the completion of the IPO, RMCO’s Third Amended and Restated Limited Liability Company Agreement, dated as of February 1, 2013 was amended and restated to, among other things, modify its capital structure as follows (collectively referred to, the “Reorganization Transactions”): |
RMCO’s existing Class A preferred membership interest was converted into (i) a new preferred membership interest that reflected RMCO’s preferred equity holder’s liquidation preference of $49,850,000 and (ii) a common interest that reflected RMCO’s preferred equity holders pro-rata share of the residual equity value of RMCO; | RMCO’s existing Class A preferred membership interest was converted into (i) a new preferred membership interest that reflected Weston Presidio’s liquidation preference of approximately $49,850,000 and (ii) a common interest that reflected Weston Presidio’s pro-rata share of the residual equity value of RMCO; |
RMCO effectuated a 25 for 1 split of the then existing number of outstanding common units so that one common unit of RMCO could be acquired with the net proceeds received in the Corporation’s IPO from the sale of one share of the Corporation’s Class A common stock, after the deduction of underwriting discounts and commissions; | RMCO effectuated a 25 for 1 split of the then existing number of outstanding common units so that one common unit of RMCO could be acquired with the net proceeds received in RE/MAX Holdings, Inc.’s IPO from the sale of one share of RE/MAX Holdings, Inc.’s Class A common stock, after the deduction of underwriting discounts and commissions; |
The Corporation became a member and the sole manager of RMCO following the purchase of common units of RMCO, as described below; | RE/MAX Holdings, Inc. became a member and the sole manager of RMCO following the purchase of common units of RMCO, as described below; |
Previously outstanding and unexercised options to acquire common units of RMCO were split 25 for 1 and then substituted for 787,500 options to acquire shares of the Corporation’s Class A common stock; and | Previously outstanding and unexercised options to acquire common units in RMCO were split 25 for 1 and then substituted for 787,500 options to acquire shares of RE/MAX Holdings, Inc.’s Class A common stock; and |
Unit holders of RMCO (other than the Corporation) were granted the right to redeem each of their common units of RMCO for, at the Corporation’s option, newly issued shares of Class A common stock of the Corporation on a one-for-one basis or for a cash payment equal to the market price of one share of the Corporation’s Class A common stock. | Unit holders of RMCO (other than RE/MAX Holdings, Inc.) were given the right to redeem each of their common units of RMCO, for, at RE/MAX Holdings, Inc.’s option, newly issued shares of Class A common stock of RE/MAX Holdings, Inc. on a one-for-one basis or for a cash payment equal to the market price of one share of RE/MAX Holdings Inc.’s Class A common stock. |
Initial Public Offering | Initial Public Offering |
The IPO closed on October 7, 2013, and the Corporation raised a total of $253,000,000 in gross proceeds from the sale of 11,500,000 shares of Class A common stock at $22.00 per share, or $224,922,500 in net proceeds after deducting $17,077,500 of underwriting discounts and commissions and $11,000,000 of estimated offering expenses, which were incurred by RMCO in connection with the IPO. | The IPO closed on October 7, 2013, and RE/MAX Holdings, Inc. raised a total of $253,000,000 in gross proceeds from the sale of 11,500,000 shares of Class A common stock at $22.00 per share, or $224,922,500 in net proceeds after deducting $17,077,500 of underwriting discounts and commissions and $11,000,000 of estimated offering expenses. |
The Corporation used $27,305,000 of the proceeds from the IPO to reacquire regional RE/MAX franchise rights in the Southwest and Central Atlantic regions of the U.S. through the acquisitions of the business assets of HBN and Tails. Immediately following the acquisitions of the business assets of HBN and Tails, the Corporation contributed such assets to RMCO in exchange for 1,330,977 common units of RMCO, reflecting the $22.00 per share IPO price net of underwriters’ commissions. The Corporation then used the remaining $208,617,500 of the net proceeds received from the IPO to purchase 10,169,023 common units in RMCO. See Note 12, Subsequent Events of RMCO’s unaudited condensed consolidated financial statements for more information regarding RMCO’s use of proceeds. | RE/MAX Holdings, Inc. used $27,305,000 of the proceeds from the IPO to reacquire regional RE/MAX franchise rights in the Southwest and Central Atlantic regions of the U.S. through the acquisitions of the business assets of HBN and Tails, which occurred on October 7, 2013. Immediately following the acquisitions of the business assets of HBN and Tails, RE/MAX Holdings, Inc. contributed such assets to RMCO in exchange for 1,330,977 common units of RMCO reflecting the $22.00 public offering price per share of RE/MAX Holdings, Inc. Class A common stock, less underwriting discounts. RE/MAX Holdings, Inc. acquired the business assets of HBN and Tails and contributed the assets to the Company in order to expand the Company’s owned and operated regional franchising operations. The assets acquired constitute a business accounted for using the fair value acquisition method. The preliminary purchase price has been allocated to the assets acquired based on a preliminary estimate of their estimated fair values and is subject to change. The excess of the total purchase price over the fair value of the identifiable assets acquired was recorded as goodwill. The goodwill recognized for the acquisitions of HBN and Tails is attributable to expected synergies and projected long-term revenue growth and relates entirely to the Real Estate Franchise Services segment. |
Prior to the IPO, the Corporation did not engage in any business or activities except in connection with its formation and the negotiation of the acquisition of the business assets of HBN and Tails. The Corporation’s financial position, results of operations and cash flows included in the unaudited condensed financial statements do not reflect the transactions associated with the Corporation’s IPO. Subsequent to the IPO and related Reorganization Transactions, the Corporation will consolidate the financial results of RMCO and its subsidiaries, and the ownership interest of the other members of RMCO will be reflected as a non-controlling interest in the Corporation’s consolidated financial statements beginning October 8, 2013. | The following table summarizes the preliminary estimated fair value of the assets acquired at the acquisition date (in thousands): |
Tax Receivable Agreements | |
The Corporation entered into separate tax receivable agreements with the historical RMCO’s owners, Weston Presidio V, L.P. (“Weston Presidio” and, together with RIHI, the “Historical Owners”) and RIHI that will provide for the payment by the Corporation to the Historical Owners of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that the Corporation actually realizes, or in some circumstances is deemed to realize, as a result of an expected increase in its share of tax basis in RMCO’s tangible and intangible assets, including increases attributable to payments made under the tax receivable agreements, and deductions attributable to imputed and actual interest that accrues in respect of such payments. These tax benefit payments are not necessarily conditioned upon one or more of the Historical Owners maintaining a continued ownership interest in either RMCO or the Corporation. The Corporation expects to benefit from the remaining 15% of cash savings, if any, that it may actually realize. The substantive provisions of the separate tax receivable agreements that the Corporation entered into with each of its Historical Owners were substantially identical. | Accounts and notes receivable | $ | | 1,340 | |
Management Services Agreement | Other current assets | | 23 | |
In connection with the completion of the IPO, the Corporation entered into a management services agreement with RMCO pursuant to which the Corporation agreed to provide certain specific management services to RMCO. In exchange for the services provided, RMCO will reimburse the Corporation for compensation and other expenses of the Corporation’s officers and employees and for certain out-of-pocket costs. RMCO will also provide administrative and support services to the Corporation, such as office facilities, equipment, supplies, payroll and accounting and financial reporting. The management services agreement also provides that employees of the Corporation may participate in RMCO’s benefit plans, and that RMCO employees may participate in the Corporation’s equity incentive plan. RMCO will indemnify the Corporation for any losses arising from the Corporation’s performance under the management services agreement, except that the Corporation will indemnify RMCO for any losses caused by willful misconduct or gross negligence. | Franchise agreements | | 23,008 | |
Equity-Based Awards | Goodwill | | 3,179 | |
On October 1, 2013 the Corporation granted 107,971 restricted stock units at a value of $22.00 per unit to certain employees in connection with the Corporation’s IPO that vested upon grant, but for which the underlying shares will not be issued until May 20, 2014. Non-cash compensation expense of approximately $2,051,000 associated with these restricted stock units will be recognized during the fourth quarter of 2013, which reflects a discount for the lack of marketability of the restricted stock units. | Other assets | | 15 | |
In addition, on October 1, 2013, the Corporation granted 115,699 restricted stock units at a value of $22.00 per unit to its officers and employees, which will vest over a three year period and 18,184 restricted stock units at a value of $22.00 per unit to its directors, which will vest over a one year period. As a result of the vesting requirements associated with these restricted stock units, non-cash compensation expense of approximately $264,000 is expected to be recognized in the fourth quarter of 2013 and approximately $1,029,000, $754,000 and $691,000 of non-cash compensation expense is expected to be recognized during 2014, 2015, and 2016, respectively. | Accrued liabilities | | (260 | ) |
| | $ | | 27,305 | |
| RE/MAX Holdings, Inc. then used the remaining $208,617,500 of the net proceeds received from the IPO to purchase 10,169,023 common units of RMCO. Of the $208,617,500 of proceeds received by RMCO from RE/MAX Holdings, Inc., $11,000,000 was reserved by RMCO to pay estimated offering expenses. The remaining $197,617,500 of proceeds was used as follows: (i) $49,850,000 was used to pay the liquidity preference associated with Weston Presidio’s preferred membership interest in RMCO; and (ii) $147,767,500 was used to redeem common units of RMCO from Weston Presidio and RIHI at a price per common unit equal to the public offering price per share of RE/MAX Holdings, Inc.’s Class A common stock, less underwriting discounts. |
| Prior to the IPO, RE/MAX Holdings, Inc. did not engage in any business or activities except in connection with its formation and the negotiation of the acquisition of the business assets of HBN and Tails. Subsequent to the IPO and related reorganization and offering transactions, RE/MAX Holdings, Inc. will consolidate the financial results of RMCO and its subsidiaries, and the ownership interest of the other members of RMCO will be reflected as a non-controlling interest in RE/MAX Holdings, Inc.’s consolidated financial statements beginning October 8, 2013. |
| In connection with the successful completion of the IPO, the Company paid $528,000 in cash bonuses to its employees. |
| Tax Receivable Agreements |
| RE/MAX Holdings, Inc. entered into separate tax receivable agreements with Weston Presidio and RIHI (collectively, the “Historical Owners”), that will provide for the payment by RE/MAX Holdings, Inc. to the Historical Owners of RMCO of 85% of the amount of cash savings, if any, in U.S. federal, state and local income tax or franchise tax that RE/MAX Holdings, Inc. actually realizes, or in some circumstances is deemed to realize, as a result of an expected increase in its share of tax basis in RMCO’s tangible and intangible assets, including increases attributable to payments made under the tax receivable agreements, and deductions attributable to imputed and actual interest that accrues in respect of such payments. These tax benefit payments are not necessarily conditioned upon one or more of the Historical Owners maintaining a continued ownership interest in either RMCO or RE/MAX Holdings, Inc. RE/MAX Holdings, Inc. expects to benefit from the remaining 15% of cash savings, if any, that it may actually realize. The provisions of the separate tax receivable agreements that RE/MAX Holdings, Inc. entered into with each of its Historical Owners were identical. |
| Management Services Agreement |
| In connection with the completion of the IPO, the Company entered into a management services agreement with RE/MAX Holdings, Inc. pursuant to which RE/MAX Holdings, Inc. will agree to provide certain specific management services to the Company. In exchange for the services provided, the Company will reimburse RE/MAX Holdings, Inc. for compensation and other expenses of RE/MAX Holdings, Inc.’s officers and employees and for certain out-of-pocket costs. The Company will also provide administrative and support services to RE/MAX Holdings, Inc., such as office facilities, equipment, supplies, payroll and accounting and financial reporting. The management services agreement further provides that employees of RE/MAX Holdings, Inc. may participate in the Company’s benefit plans, and that the Company’s employees may be entitled to compensation in the form of equity awards issued by RE/MAX Holdings, Inc. The Company will indemnify RE/MAX Holdings, Inc. for any losses arising from our performance under the management services agreement, except that RE/MAX Holdings, Inc. will indemnify the Company for any losses caused by willful misconduct or gross negligence. |