What does the goodwill from the Northbound Executive Search acquisition represent for Management Recruiters?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
| Cash consideration | $ 9,600 |
|---|---|
| Net working capital payable | 328 |
| Note payable | 1,500 |
| Total consideration | $ 11,428 |
| Customer relationships | $ 7,700 |
| Trade name | 1,400 |
| Accounts receivable | 3,386 |
| Other current assets | 94 |
| Goodwill | 500 |
| Current liabilities assumed | (1,652) |
| Purchase price allocation | $ 11,428 |
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Northbound. Goodwill is deductible for income tax purposes.
The following table presents unaudited pro forma information (in thousands, except per share data) assuming (a) the acquisition of Northbound had occurred on January 1, 2021, (b) all of Northbound's operations had been converted to franchises on such date, and (c) none of the other acquisitions discussed in this Note 2 had occurred. The unaudited pro forma information is not necessarily indicative of the results of
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, goodwill from the acquisition of Northbound Executive Search represents several expected benefits for the company. Specifically, it reflects the anticipated synergies with Management Recruiters' existing business operations, the value of the acquired assembled workforce, the potential to gain new customers, and the expectation of future cash flows resulting from the acquisition. The FDD also notes that this goodwill is deductible for income tax purposes, which could provide a financial advantage to Management Recruiters. The goodwill recorded on the acquisition of Northbound was $500.
The acquisition of Northbound Executive Search, which was completed on February 28, 2022, for approximately $11.4 million, inclusive of a $1.5 million note payable and a prescribed amount of working capital, was intended to help Management Recruiters expedite growth into a new staffing vertical, expand its national footprint, and grow its franchise base. Northbound provides executive placement and short-term consultant services primarily to blue-chip clients in the financial services industry.
For a prospective franchisee, this indicates that Management Recruiters is actively expanding and diversifying its services through strategic acquisitions. The recognition of goodwill and its tax-deductible nature suggests that Management Recruiters anticipates long-term financial benefits from these acquisitions, which could translate into a stronger and more profitable franchise system. The pro forma information, while not indicative of actual results, provides a scenario where franchise royalties attributable to the acquiree of approximately $1.1 million is included in Management Recruiters' consolidated statement of income for the year ended December 31, 2023.