Acquisition

3 Months Ended

Mar. 31, 2020

Acquisition

Quarton

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 22), 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 Acquisition Date, 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. Goodwill, the excess of the purchase price over the fair value of net assets, primarily relates to expected synergies from combining operations and has been assigned to the Op Co segment of the Company. Tax deductible goodwill will differ from goodwill recognized by the Company in an amount equal to the difference between actual contingent consideration and estimated contingent consideration.

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 and had a weighted average useful life of 2.8 years. 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 each of the three months ended March 31, 2020 and 2019 was $2.2 million, 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)
2020	$	6,681
2021	2,608
2022	1,775
2023	—
2024	—
Thereafter	—
	$	11,064

In addition to the purchase price consideration, for the three months ended March 31, 2019, the Company had incurred acquisition-related expenses of $1.1 million, 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 months ended March 31, 2019 is revenue of $5.3 million and net income of $1.6 million related to the results of operations of Quarton.