Goodwill and Intangibles

12 Months Ended

Dec. 31, 2020

Goodwill and Intangible Assets Disclosure

Goodwill and Intangible Assets

Goodwill

In accordance with US GAAP, the Company tests goodwill for impairment on an annual basis or at an interim period if events or changed circumstances would more likely than not reduce the fair value of a reporting unit below its carrying amount. Under US GAAP, the Company first assesses the qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amounts as a basis for determining if it is necessary to perform a quantitative impairment test. Periodically estimating the fair value of a reporting unit requires significant judgment and often involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant effect on whether or not an impairment charge is recorded and the magnitude of such a charge.

Change in segments

During the second quarter of 2019, the Company realigned its business segments to Op Co and Asset Co (See Note 1). Prior to the reorganization, the Investment Management segment was also a reporting unit for purposes of measuring and reporting goodwill. The goodwill that was previously attributable to the Investment Management reporting unit was reallocated to the CIM reporting unit within the Op Co segment and the Asset Co reporting unit based on the relative fair value of the respective portions that became attributable to those reporting units. The Asset Co segment is also a reporting unit for purposes of measuring and reporting goodwill.

Based on the change in segments and restructuring of reporting units, the Company determined that it was necessary to perform a quantitative impairment test which involved estimates of future cash flows, discount rates, economic forecast and other assumptions which are then used in the market approach (earnings and / or transactions multiples) and / or income approach (discounted cash flow method).

Based on the results of the impairment analysis, the Company recognized a goodwill impairment, during the second quarter of 2019, in the amount of $4.1 million within the Asset Co reporting unit.

Annual impairment test

The Company performed its annual impairment test at December 31, 2020 through a quantitative impairment test which involved estimates of future cash flows, discount rates, economic forecast and other assumptions which are then used in the market approach (earnings and / or transactions multiples) and / or income approach (discounted cash flow method).

Based on the results of the annual impairment analysis at December 31, 2020, the Company did not recognize a goodwill impairment relating to any of the Company's reporting units. Additionally, no impairment charge for goodwill was recognized during the year ended December 31, 2018.

The following table presents the changes in the Company's goodwill balance, by reporting unit for the periods ended December 31, 2020 and 2019:


	Investment Management		Investment Bank		Cowen Investment Management		Asset Co		Total
	(dollars in thousands)
Beginning balance - December 31, 2018
Goodwill	$	29,026	$	51,337	$	—	$	—	80,363
Accumulated impairment charges	(10,200)		(9,485)		—		—		(19,685)
Net	18,826		41,852		—		—		60,678

Activity: 2019
Recognized goodwill (See note 3)	—		81,150		—		—		81,150
Realignment of segment goodwill:
Goodwill	(29,026)		—		22,705		6,321		—
Accumulated impairment charges	10,200		—		(7,979)		(2,221)		—
Goodwill impairment charges	—		—		—		(4,100)		(4,100)

Beginning balance: December 31, 2019
Goodwill	—		132,487		22,705		6,321		161,513
Accumulated impairment charges	—		(9,485)		(7,979)		(6,321)		(23,785)
Net	—		123,002		14,726		—		137,728

Activity: 2020
Recognized goodwill (See note 3)	—		9,356		—		—		9,356
Goodwill impairment charges	—		—		—		—		—

Ending balance: December 31, 2020
Goodwill	—		141,843		22,705		6,321		170,869
Accumulated impairment charges	—		(9,485)		(7,979)		(6,321)		(23,785)
Net	$	—	$	132,358	$	14,726	$	—	$	147,084

In connection with the MHT transaction (see Note 3), in October 2020, the Company recognized goodwill of $9.4 million and intangible assets (including customer relationships, trade name, and non compete) with an estimated fair value of $1.2 million which are included within intangible assets, net in the consolidated statements of financial condition with the expected useful lives ranging from 3 to 5 years with a weighted average useful life of 4.17. Amortization expense related to intangibles from the MHT acquisition for the year ended December 31, 2020 totaled $0.1 million. Goodwill primarily relates to expected synergies from combining the acquired operations with our 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 (see Note 3).

In connection with the Quarton transaction (see Note 3), in January 2019, the Company recognized goodwill of $81.2 million and intangible assets (including customer relationships, trade name, backlog and proprietary software) with an estimated fair value of $22.2 million which are included within intangible assets in the consolidated statements of financial condition with the expected useful lives ranging from 2 to 4 years with a weighted average useful life of 2.8 years. Amortization expense related to intangibles from the Quarton acquisition for the years ended December 31, 2020 and 2019 is $8.9 million, respectively. 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 (see Note 3).

Intangible assets

Information for the Company's intangible assets that are subject to amortization is presented below as of December 31, 2020 and 2019.


		December 31, 2020						December 31, 2019
	Amortization Period	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
	(in years)	(in thousands)						(in thousands)

Trade names	3	$	1,031	$	(611)	$	420	$	960	$	(360)	$	600
Customer relationships	2 - 14	52,040		(32,154)		19,886		51,724		(21,065)		30,659

Non-compete agreements and covenants with limiting conditions acquired	5	344		(17)		327		400		(347)		53
Intellectual property	8	2,972		(328)		2,644		1,188		(119)		1,069
Acquired software	3 - 10	5,900		(4,774)		1,126		7,323		(4,504)		2,819
		$	62,287	$	(37,884)	$	24,403	$	61,595	$	(26,395)	$	35,200

The Company tests intangible assets for impairment if events or circumstances suggest that the asset groups carrying value may not be fully recoverable. The Company recognized impairment charges of $2.4 million during the year ended December 31, 2020. The impairment charges primarily related the Company’s decision to limit the activities of its clearing business, resulting in a $1.9 million impairment of a) intangible assets relating to customer lists and b) capitalized internally developed software costs. The remaining impairment charges related to the impairment of intangible assets related to legacy capitalized software from the 2017 Convergex acquisition. These impairment charges are recorded in Other Expenses in the accompanying consolidated statements of operations. For the year ended December 31, 2019, no impairment charge for intangible assets was recognized.

Amortization expense related to intangible assets was $13.0 million, $13.1 million, and $5.0 million for the years ended December 31, 2020, 2019, and 2018, respectively, which is included in depreciation and amortization expense in the accompanying consolidated statements of operations. All of the Company's intangible assets have finite lives.

The estimated future amortization expense for the Company's intangible assets placed in service as of December 31, 2020 is as follows:


	(dollars in thousands)
2021	$	6,828
2022	5,439
2023	3,432
2024	3,172
2025	2,148
Thereafter	3,384
	$	24,403