Acquisitions, Divestiture and Joint Venture Activities
|9 Months Ended|
Sep. 30, 2021
|Equity Method Investments and Joint Ventures [Abstract]|
|Acquisitions, Divestiture and Joint Venture Activities||Acquisitions, Divestiture and Joint Venture Activities
On July 1, 2021, the Company purchased Heart n' Home Hospice for $50.1 million, which included seven wholly-owned hospice locations in Idaho and two wholly-owned hospice locations in Oregon. In addition, the Company purchased Casa de la Luz on July 1, 2021 for $48.0 million, which included two wholly-owned hospice and palliative care locations in Arizona.
On September 1, 2021, the Company purchased Heart of Hospice for $277.1 million, which included 24 wholly-owned hospice locations in Arkansas, Louisiana, Mississippi, Oklahoma, and South Carolina. In separate acquisitions, the Company acquired the majority-ownership of two home health agencies and one hospice agency during the nine months ended September 30, 2021
for an aggregate purchase price $10.3 million. The purchase prices were determined based on the Company's analysis of comparable acquisitions and the target market's potential future cash flows.
Goodwill generated from the acquisitions was recognized based on the expected contributions of each acquisition to the overall corporate strategy. The Company expects its portion of goodwill to be fully tax deductible. The acquisitions were accounted for under the acquisition method of accounting. Accordingly, the accompanying interim financial information includes the results of operations of the acquired entities from the date of acquisition.
Transaction costs associated with acquisitions are expensed as incurred. During the nine months ended September 30, 2021, the Company incurred $6.1 million in acquisition-related transaction costs, which was recorded in the consolidated statements of income as general and administrative expenses.
The Company's preliminary valuation analysis of identifiable assets and liabilities assumed for Heart n' Home Hospice and Heart of Hospice is in accordance with the requirements of ASC Topic 805, Business Combinations. The final determination of the fair value of assets acquired and liabilities assumed will be completed in accordance with the applicable accounting guidance. The following table summarizes the preliminary amounts of the assets acquired and liabilities assumed at their acquisition dates, as well as their fair value at the acquisition dates and the noncontrolling interest acquired during the nine months ended September 30, 2021 (amounts in thousands):
Trade names and certificates of need/licenses are indefinite-lived assets and, therefore, not subject to amortization. Acquired trade names that are not being used actively are amortized over the estimated useful life on the straight line basis. Trade names are valued using the relief from royalty method, a form of the income approach. Certificates of need are valued using the replacement cost approach based on registration fees and opportunity costs. Licenses are valued based on the estimated direct costs associated with recreating the asset, including opportunity costs based on an income approach. In the case of states with a moratorium in place, the licenses are valued using the multi-period excess earnings method. Noncontrolling interest is recorded at fair value.
During the nine months ended September 30, 2021, the Company sold its controlling membership interests in a home health agency previously operated as an equity joint venture and sold its pharmacy location which was wholly-owned. The total consideration for these controlling interest sales was $1.5 million and resulted in a loss of $0.1 million, which was accounted for as a loss on the sale of entities and recorded in general and administrative expenses.
Joint Venture Activities
During the nine months ended September 30, 2021, the Company purchased additional controlling membership interest in four of our equity joint venture partnerships, whereby the agencies became wholly-owned subsidiaries of the Company. The total consideration for these additional controlling interest purchases was $2.1 million. The transactions were accounted for as equity transactions.
During the nine months ended September 30, 2021, the Company sold noncontrolling membership interest in two home health agencies. The total consideration of the sales of noncontrolling membership interest was $1.9 million. The transactions were accounted for as equity transactions.