Acquisition

On January 2, 2019 (the "Acquisition Date"), the Company, together with its indirect wholly owned subsidiaries, Cowen International Ltd and Cowen QN Acquisition LLC, completed its previously announced acquisition (the "Acquisition") of Quarton International AG through the acquisition of all of the outstanding equity interest of Quarton International AG’s affiliated combining companies, Quarton Management AG, Quarton International Europe AG, Quarton Partners, LLC and Quarton Securities GP, LLC (which owns a formerly U.S. Securities Exchange Commission ("SEC") registered broker-dealer that was subsequently renamed to Cowen Securities L.P. ("Cowen Securities") (see Note 23), comprising the U.S. and European operations of the acquired combining companies (collectively "Quarton"). Quarton is a group of leading global financial advisory companies serving the middle market. Quarton's operations were primarily conducted through eight entities based in the United States, Switzerland, and Germany.

The acquisition was accounted for under the acquisition method of accounting in accordance with US GAAP. As such, results of operations for Quarton 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 Quarton were integrated within the Company's existing businesses.

The aggregate estimated purchase price of the Acquisition was $103.0 million. On the Acquisition Date the Company paid upfront consideration of $75.3 million subject to certain net working capital and other customary adjustments, with additional maximum contingent consideration of $40.0 million that will become payable dependent on the achievement of certain milestones by Quarton in each of the first four years (five years if certain conditions are met) following the Acquisition Date subject to a $10 million maximum in each year and a $40.0 million cumulative maximum. The Company estimated the contingent consideration at $27.7 million using the Monte Carlo valuation model which requires the Company to make estimates and assumptions regarding the future cash flows and profits. The contingent consideration liability is included within accounts payable, accrued expenses and other liabilities on the condensed consolidated statements of financial condition. Changes in these estimates and assumptions could have a significant impact on the amounts recognized. A portion of the preliminary purchase price was deposited into escrow, in the amount of $0.6 million, as a reserve for any future claims against the sellers of Quarton. All consideration, including the upfront consideration and contingent consideration, consists of a combination of 80% cash and 20% shares of the Company’s Class A common stock. Shares issued on the Acquisition Date of 1,033,350 were valued based on the 30-trading day volume-weighted average price per share of $14.52 as of December 31, 2018. The fair value of the shares of Class A common stock issued was determined on the basis of the closing market price of the Company’s shares on the Acquisition Date. Any shares of Class A common stock issued in connection with any such contingent payments will be valued based on the 30-trading day volume-weighted average price per share as of the day immediately prior to the date on which such shares are to be issued. In addition, Quarton and the Company have established a retention bonus pool, for Quarton employees that remain employed at the end of each year there is a contingent payment which will be settled in a combination of 80% cash and 20% shares of the Company’s Class A common stock based on Quarton meeting certain economic performance hurdles. The bonus pool has an aggregate maximum of $10.0 million over a five-year period with $2.5 million maximum in each year. The Company is recognizing the retention bonus over each contingent payment period based upon the Company’s revenue projections for Quarton.

The table below summarizes the purchase price allocation of net tangible and intangible assets acquired and liabilities assumed as of January 2, 2019:



	(dollars in thousands)
Cash and cash equivalents	$	12,236
Fees receivable	7,269
Fixed assets	1,085
Operating lease right-of-use assets	3,200
Intangible assets	22,200
Other assets	667
Compensation payable	(637		)
Operating lease liabilities	(3,200		)
Due to related parties	(4,750		)
Accounts payable, accrued expenses and other liabilities	(16,257		)
Total identifiable net assets acquired and liabilities assumed	21,813
Goodwill	81,150
Total estimated purchase price	$	102,963

As of the acquisition date, the estimated fair value of the Company's intangible assets, as acquired through the Acquisition, was $22.2 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	$	900	3
Customer relationships	7,100		4
Backlog	12,600		2
Proprietary software	1,600		3
Total intangible assets	$	22,200

Amortization expense for the three and nine months ended September 30, 2019 was $2.2 million and $6.7 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)
2019	$	2,227
2020	8,908
2021	2,608
2022	1,775
2023	—
Thereafter	—
	$	15,518

In addition to the purchase price consideration, for the three and nine months ended September 30, 2019, the Company has incurred acquisition related expenses of $0.1 million and $1.2 million, respectively, including financial advisory, legal and valuation services, which are included in professional, advisory and other fees in the accompanying condensed consolidated statements of operations.

Included in the accompanying condensed consolidated statements of operations for the three and nine months ended September 30, 2019 are revenues of $14.1 million and $26.3 million, respectively, and net income of $3.2 million and $5.6 million, respectively, related to the results of operations of Quarton.

Subsequent to the acquisition, Quarton's businesses were integrated within the Op Co segment of the Company and therefore they are included within their respective line items in the accompanying condensed consolidated statements of operations. The following table provides supplemental pro forma financial information for the three and nine months ended September 30, 2018, as if the acquisition were completed as of January 1, 2018. This unaudited 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, 2018, nor does it purport to be indicative of any future results.



	Three Months Ended September 30, 2018		Nine Months Ended September 30, 2018
	(dollars in thousands, except per share data)
Net revenues	$	206,797	$	661,759
Net income (loss) attributable to Cowen Inc. common stockholders	15,728		35,616

Net income (loss) per common share:
Basic	$	0.51	$	1.16
Diluted	0.49		1.12