Acquisition

On April 2, 2017, the Company, through its wholly owned subsidiary Cowen CV Acquisition LLC, entered into a securities purchase agreement with, among others, Convergex Holdings LLC to acquire all the outstanding interests in Convergex Group, LLC ("Convergex Group") (subsequently renamed to Cowen Execution Holdco LLC), a provider of agency based execution services and trading technology to middle market institutional investors and broker-dealers. Convergex Group's operations were primarily conducted through two U.S. Securities Exchange Commission ("SEC") registered broker-dealers, Convergex Execution Solutions LLC (subsequently renamed to Cowen Execution Services LLC) ("Cowen Execution") and Westminster Research Associates LLC ("Westminster Research") and also Convergex Limited (subsequently renamed to Cowen Execution Services Limited) ("Cowen Execution Ltd"), which is based in the United Kingdom and regulated by the Financial Conduct Authority ("FCA"). The purchase price was paid approximately 50% in cash and 50% in Cowen Inc. Class A common stock.

The acquisition was consummated effective as of June 1, 2017. The adjusted aggregate estimated purchase price was $96.2 million, which was determined based on closing date tangible book value of Convergex Group, less certain closing adjustments. A portion of the preliminary purchase price was deposited into escrow as a reserve for any future claims against the sellers of Convergex Group. On closing, the Company paid cash of $48.6 million and issued 3,162,278 of the Company’s Class A common stock determined based on the 30-day volume-weighted average price per share of $15.05 as of May 30, 2017.

The acquisition was 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 Convergex Group are included in the accompanying condensed consolidated statements of operations since the date of acquisition, and the assets acquired and liabilities assumed were recorded at their fair value as of the acquisition date. Subsequent to the acquisition, the operations of Convergex Group were integrated within the Company's existing businesses.

The Company is currently in the process of finalizing its purchase price allocation of Convergex Group; therefore, the purchase price adjustments as of September 30, 2017 are preliminary and subject to measurement period adjustments. The allocation of the purchase price to the net assets acquired will be finalized as necessary, up to one year after the acquisition's closing date, as the information becomes available.

The table below summarizes the preliminary purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as of June 1, 2017:



	(dollars in thousands)
Cash and cash equivalents	$	31,780
Segregated cash	127,807
Securities owned, at fair value	3,417
Securities borrowed	258,321
Deposits from clearing organizations	52,596
Receivable from brokers	62,983
Receivable from customers	43,469
Fees receivable	36,232
Fixed assets, net	1,325
Intangible assets, net	10,270
Other assets	7,528
Securities sold, not yet purchased, at fair value	(71		)
Securities loaned	(286,359		)
Payable to brokers	(74,284		)
Payable to customers	(11,801		)
Commission management payable	(82,718		)
Compensation payable	(31,083		)
Notes payable and other debt	(857		)
Fees payable	(5,414		)
Accounts payable, accrued expenses and other liabilities	(33,570		)
Total identifiable net assets acquired and liabilities assumed	109,571
Goodwill/(Bargain purchase gain)	(13,343		)
Total estimated purchase price	$	96,228

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. See Note 16 for further information on legal matters relating to the acquisition.

As of the acquisition date, the estimated fair value of the Company's intangible assets, as acquired through the acquisition, was $10.3 million. The allocation of the intangible assets is shown within the following table.



	Estimated intangible assets acquired		Estimated average remaining useful lives
	(dollars in thousands)		(in years)
Intangible asset class
Trade name	$	760	0.6 - 2.6
Intellectual property	1,790		5
Customer relationships	7,720		9
Total intangible assets	$	10,270

Amortization expense for the three and nine months ended September 30, 2017 is $0.6 million and $0.8 million, respectively, and is included in depreciation and amortization in the accompanying condensed consolidated statements of operations. The estimated amortization expense related to these intangible assets in future periods is as follows:



	(dollars in thousands)
2017	$	601
2018	1,258
2019	1,239
2020	1,216
2021	1,216
Thereafter	3,938
	$	9,468

Based on the June 1, 2017 estimated purchase price allocation, the fair value of the net identifiable assets acquired and liabilities assumed of $109.6 million exceeded the estimated purchase price of $96.2 million. As a result, the Company has recognized a bargain purchase gain of $13.3 million related to the acquisition. The bargain purchase gain is shown net of $5.4 million of associated tax in the accompanying condensed consolidated statements of operations.

In addition to the purchase price consideration, for the three and nine months ended September 30, 2017, the Company has incurred acquisition related expenses of $1.1 million and $5.8 million, respectively, including financial advisory, legal and valuation services, which are included in professional, advisory and other fees in the condensed consolidated statements of operations. Subsequent to the acquisition, certain of Convergex Group's businesses were integrated within the broker-dealer businesses of the Company and therefore they are included within their respective line items in the accompanying condensed consolidated statements of operations from June 1, 2017 through September 30, 2017. The following table provides unaudited supplemental pro forma financial information for the nine months ended September 30, 2017 and 2016, as if the acquisition were completed as of January 1, 2016. This supplemental pro forma information has been prepared for comparative purposes only and is not intended to be indicative of what the Company's financial results would have been had the acquisition been completed on January 1, 2016, nor does it purport to be indicative of any future results.



	Nine Months Ended September 30,
	2017			2016
	(dollars in thousands, except per share data)
	(unaudited)
Revenues	$	529,294		$	507,029
Net income (loss) attributable to Cowen Inc. stockholders	(7,001		)	(39,044		)

Net income (loss) per common share:
Basic (a)	$	(0.23	)	$	(1.30	)
Diluted (a)	(0.23		)	(1.30		)

(a) Share and per share amounts have been retroactively updated to reflect the one-for-four reverse stock split effective as of December 5, 2016.

In conjunction with the integration of the acquired businesses of Convergex Group, the Company evaluated the combined broker-dealer businesses and operations and incurred approximately $8.8 million of integration and restructuring costs which primarily related to exit and disposal costs, discontinuation of redundant technology services and severance costs. During the three months ended September 30, 2017, the Company continued to integrate the businesses acquired through Convergex Group and consolidated certain similar businesses under one legal entity.