What did the goodwill represent for Management Recruiters after the acquisition of Dubin?
Management_Recruiters Franchise · 2024 FDDAnswer from 2024 FDD Document
Goodwill represents the expected synergies with our existing business, the acquired assembled workforce, potential new customers, and future cash flows after the acquisition of Dubin. Goodwill is deductible for income tax purposes.
The Dubin Group, Inc., and Dubin Workforce Solutions
On February 21, 2022 we completed our acquisition of the staffing operations of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively "Dubin") in accordance with the terms of an Asset Purchase Agreement dated January 19, 2022 for approximately $2.5 million, inclusive of a prescribed amount of working capital. Dubin provides executive placement services and commercial staffing in the Philadelphia metro area. The acquisition of Dubin expedited growth into a new staffing vertical, expand our national footprint, and grew our franchise base.
The fair values of the assets acquired were determined based on information available to us. From the date of acquisition through December 31, 2022, the fair value of assets acquired were adjusted in conjunction with a third-party valuation. These adjustments included an increase in customer relationships of approximately $972 thousand, a decrease in customer lists of approximately $772 thousand, and the recognition of approximately $200 thousand of goodwill.
In connection with the Dubin acquisition, certain assets acquired are still owned by us and classified as held-for-sale. When we acquired Dubin, there were two business lines. Dubin Workforce Solutions specialized in temporary labor assignments. The Dubin Group focused on permanent recruiting. We immediately sold the assets of Dubin Workforce Solutions to a new franchisee. There was not a franchisee identified for the Dubin Group portion of the business, however, we began marketing the franchise and classified it as held-for-sale immediately upon acquisition. We entered into an employment agreement with the seller to continue managing the business as a Company-owned location while it was held-for-sale. During 2023, we actively solicited but did not receive any reasonable offers to purchase the assets and, in response, have adjusted the price. The franchise continues to be actively marketed at a price that is reasonable given its results of operation. We expect to complete a sale of these assets within the next 12 months.
| Goodwill recorded on acquisition of Dubin | 200 |
Source: Item 21 — FINANCIAL STATEMENTS (FDD pages 65–66)
What This Means (2024 FDD)
According to Management Recruiters' 2024 Franchise Disclosure Document, goodwill after the acquisition of Dubin represented the expected synergies with their existing business, the acquired assembled workforce, potential new customers, and future cash flows. The FDD also states that goodwill is deductible for income tax purposes. Management Recruiters completed its acquisition of the staffing operations of The Dubin Group, Inc., and Dubin Workforce Solutions, Inc. (collectively "Dubin") on February 21, 2022. The acquisition was made in accordance with the terms of an Asset Purchase Agreement dated January 19, 2022, for approximately $2.5 million, inclusive of a prescribed amount of working capital.
Management Recruiters' acquisition of Dubin was intended to expedite growth into a new staffing vertical, expand their national footprint, and grow their franchise base. The fair values of the assets acquired were determined based on information available to Management Recruiters. From the date of acquisition through December 31, 2022, the fair value of assets acquired were adjusted in conjunction with a third-party valuation. These adjustments included an increase in customer relationships of approximately $972 thousand, a decrease in customer lists of approximately $772 thousand, and the recognition of approximately $200 thousand of goodwill.
For a prospective Management Recruiters franchisee, understanding goodwill is crucial because it reflects the intangible value Management Recruiters places on acquisitions like Dubin. The goodwill impacts Management Recruiters' financial statements and could influence future strategic decisions. The FDD indicates that in connection with the Dubin acquisition, certain assets acquired are still owned by them and classified as held-for-sale. When they acquired Dubin, there were two business lines. Dubin Workforce Solutions specialized in temporary labor assignments, and The Dubin Group focused on permanent recruiting. Management Recruiters immediately sold the assets of Dubin Workforce Solutions to a new franchisee.
There was not a franchisee identified for the Dubin Group portion of the business; however, Management Recruiters began marketing the franchise and classified it as held-for-sale immediately upon acquisition. During 2023, they actively solicited but did not receive any reasonable offers to purchase the assets and, in response, have adjusted the price. The franchise continues to be actively marketed at a price that is reasonable given its results of operation, and they expect to complete a sale of these assets within the next 12 months. The goodwill recorded on the acquisition of Dubin was $200 thousand.