Acquisitions

During the year ended December 31, 2012, the Company completed two acquisitions that were not individually material but material in the aggregate. On April 5, 2012, the Company completed its acquisition of all of the outstanding interests in ATM USA, LLC ("ATM USA"), Algorithmic Trading Management, LLC ("ATM LLC") and Algo Trading Management Inc. ("ATM INC") (collectively the “ATM Group”), a provider of global, multi-asset class algorithmic execution trading models. On November 1, 2012, the Company also completed the acquisition of the outstanding interests in KDC Securities, LP (renamed subsequent to the acquisition to "Cowen Equity Finance LP"), a securities lending business. KDC Securities, LP was the broker-dealer subsidiary of Kellner Capital, LLC, an alternative investment manager. Post acquisition, the ATM Group and Cowen Equity Finance LP are included in the broker-dealer segment.

These acquisitions were completed in accordance with their respective agreements for cash of $10.9 million and contingent consideration of $8.1 million in the aggregate. In accordance with the terms of the purchase agreements, the Company is required to pay to the sellers a portion of future net profits of the businesses, if certain revenue targets are achieved over the period through October 2016. The Company estimated the contingent consideration using the income approach (discounted cash flow method) which requires the Company to make estimates and assumptions regarding the future cash flows and profits. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. The undiscounted amounts can range from $5.0 million to $13.4 million.

The acquisitions were accounted for under the acquisition method of accounting in accordance with accounting principles generally accepted in the United States of America ("US GAAP"). As such, results of operations for the ATM Group and Cowen Equity Finance LP are included in the accompanying consolidated statements of operations since the dates of the respective acquisitions, and the assets acquired, liabilities assumed and the resulting goodwill were recorded at their fair values within their respective line items on the accompanying consolidated statement of financial condition (see Note 10). Goodwill in the amount of $2.2 million is deductible for tax purposes.

The following table summarizes the aggregate preliminary purchase price allocation of net tangible and intangible assets acquired during the year ended December 31, 2012:



	(dollars in thousands)
Cash and cash equivalents	$	290
Securities owned, at fair value	17
Securities borrowed	527,854
Receivable from brokers	15,682
Fees receivable	751
Intangibles	9,782
Other assets	136
Securities loaned	(543,369		)
Compensation payable	(11		)
Fees payable	(56		)
Unfavorable lease liability	(91		)
Accounts payable, accrued expenses and other liabilities	(700		)
Total net assets acquired	$	10,285
Non compete agreements	167
Goodwill/(Bargain purchase gain) on transactions	8,517
Total purchase price	$	18,969

The Company believes that all of the acquired receivables as reflected above in the allocation of the purchase price are recorded at fair value.

The Company recognized approximately $0.3 million of acquisition-related costs, including legal, accounting, and valuation services, for the year ended December 31, 2012. These costs are included in professional, advisory and other fees and other expenses in the accompanying consolidated statements of operations.

Included in the accompanying consolidated statements of operations for the year ended December 31, 2012 are revenues of $6.2 million and net loss of $1.6 million related to the combined ATM Group and Cowen Equity Finance LP results of operations.

LaBranche & Co Inc.

The acquisition of LaBranche & Co Inc. ("LaBranche") by the Company was consummated pursuant to the terms of the Agreement and Plan of Merger ("Merger Agreement"), dated as of February 16, 2011, after the market close on June 28, 2011. LaBranche Capital, LLC ("LCAP"), which was renamed Cowen Capital LLC following consummation of the acquisition, was a wholly owned subsidiary of LaBranche and is now a wholly-owned subsidiary of the Company. LCAP is a registered broker-dealer and Financial Industry Regulatory Authority ("FINRA") member firm that operates as a market-maker in ETFs, engages in hedging activities in options, exchange traded funds ("ETFs"), structured notes, foreign currency securities and futures related to its market-making operations and also conducts principal trading activities in these securities. Prior to the acquisition, LaBranche discontinued certain operations in its market-making segment, including upstairs options market-making on various exchanges and electronic market-making in the International Securities Exchange. As of the close of market on June 28, 2011, LaBranche stock was delisted and no longer trades on the New York Stock Exchange.

Under the terms of the Merger Agreement, each outstanding share of LaBranche was converted into 0.9980 shares of Cowen Class A common stock (the "Exchange Ratio"). The consideration received by LaBranche's shareholders was valued at approximately $156.0 million in the aggregate, based on the closing price of Cowen Class A common stock on the NASDAQ Global Select Market of $3.82 on June 28, 2011. This is based on 40,931,997 shares of LaBranche stock that were outstanding on the date of the completion of the acquisition.

The acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. In this case, the acquisition was accounted for as an acquisition by Cowen of LaBranche. As such, results of operations for LaBranche are included in the accompanying consolidated statements of operations since the date of acquisition, and the assets acquired and liabilities assumed were recorded at their estimated fair values. The fair value of Cowen shares issued to LaBranche shareholders was the purchase consideration for the acquisition. Based on the June 28, 2011 purchase price allocation, the fair value of the net identifiable assets acquired and liabilities assumed amounted to $176.0 million (excluding $2.3 million non-compete agreements and covenants with limiting conditions acquired), exceeding the fair value of the purchase price of $156.0 million. As a result, the Company recognized a nonrecurring bargain purchase gain of approximately $22.2 million in the second quarter of 2011, which is included in other income in the accompanying consolidated statements of operations for the twelve months ended December 30, 2011. The purchase consideration (the Exchange Ratio) was determined based on the stock price of Cowen on June 28, 2011, the purchase price allocation based on the fair value of LaBranche's net assets at acquisition date reflected in these accompanying consolidated financial statements and has resulted in a bargain purchase gain.

The following table summarizes the purchase price allocation of net tangible and intangible assets acquired as of June 28, 2011:



	(dollars in thousands)
Cash and cash equivalents	$	117,496
Cash collateral pledged	1,127
Securities owned, at fair value	221,855
Other investments	2,569
Receivable from brokers	93,754
Fixed assets, net	8,804
Intangibles	2,770
Other assets	5,137
Securities sold, not yet purchased, at fair value	(175,391		)
Payable to brokers	(81,536		)
Compensation payable	(3,521		)
Fees payable	(969		)
Unfavorable lease	(3,388		)
Accounts payable, accrued expenses and other liabilities	(12,725		)
Total net assets acquired	$	175,982
Non compete agreements and covenants with limiting conditions acquired	2,310
Goodwill/(Bargain purchase gain) on transaction	(22,244		)
Total purchase price	$	156,048

The Company believes that all of the acquired receivables and contractual amounts receivable as reflected above in the allocation of the purchase price are recorded at fair value.

The Company recognized approximately $3.3 million of acquisition-related costs, including legal, accounting, and valuation services, for the year ended December 31, 2011. These costs are included in professional, advisory and other fees and other expenses in the accompanying consolidated statements of operations.

As of the acquisition date, the estimated fair value of the Company's intangibles, as acquired through the acquisition, was $2.8 million. In addition, non-compete agreements and covenants with limiting conditions for the amount of $2.3 million were negotiated as part of the acquisition, which have been recognized separately from the acquisition of assets and liabilities assumed in accordance with US GAAP. The total non-compete agreements and covenants with limiting conditions acquired of $2.5 million have been included within intangible assets, net in the accompanying consolidated statements of financial condition. The allocation of the intangibles' amortization expense for the twelve months ended December 31, 2012 and estimated amortization expense in future years are shown in Note 10 "Goodwill and Intangible Assets".

During the fourth quarter of 2011, the subsidiaries acquired through the LaBranche acquisition were discontinued (See Note 4). As a result, no unaudited supplemental proforma information is presented.