Acquisitions, Goodwill and Intangible Assets

12 Months Ended

Oct. 31, 2020

Acquisitions, Goodwill and Intangible Assets [Abstract]

Acquisitions, Goodwill and Intangible Assets

10.Acquisitions, Goodwill and Intangible Assets

Atlanta Capital Management Company, LLC (Atlanta Capital)

In fiscal 2020, 2019 and 2018, the Company exercised a series of call options through which it purchased $6.8 million, $7.8 million and $8.2 million, respectively, of indirect profit interests held by non-controlling interest holders of Atlanta Capital pursuant to the provisions of the Atlanta Capital Management Company, LLC Long-Term Equity Incentive Plan (Atlanta Capital Plan, as described further in Note 13). These transactions settled in each of the first quarters of fiscal 2020, 2019 and 2018, respectively.

Total indirect profit interests in Atlanta Capital held by non-controlling interest holders issued pursuant to the Atlanta Capital Plan were 7.1 percent and 8.2 percent at October 31, 2020 and 2019, respectively. Fair value of these interests reflects the unadjusted per unit equity value of Atlanta Capital determined utilizing an appraisal prepared by an independent valuation firm and approved by management as described further in Note 13. Vested profit interests are redeemable upon the exercise of limited in-service put rights held by the employee or call rights held by the Company. The call rights held by the Company entitle the Company to repurchase the profit units at the end of a ten-year call period and each year thereafter, and upon termination of employment. Execution of the puts and calls takes place upon availability of an appraisal to ensure the transactions take place at fair value. The estimated fair value of these interests was

$27.4 million and $25.2 million at October 31, 2020 and 2019, respectively, and is included as a component of temporary equity on the Consolidated Balance Sheets.

Subsequent event

As described further in Note 13, pursuant to the terms of the Merger Agreement with Morgan Stanley, in December 2020 the Company offered and obtained the consent of the holders of the remaining outstanding indirect profit interests under the Atlanta Capital Plan to vest and purchase such profit interests for cash at fair value. The Company expects to purchase the indirect profit interests by December 31, 2020.

Parametric Portfolio Associates LLC (Parametric)

During fiscal 2019, the Company announced a strategic initiative to rebrand as Parametric the rules-based, systematic investment-grade fixed income strategies offered by EVM, align internal reporting consistent with the revised branding, combine the technology and operating platforms supporting the individual separately managed account businesses of Parametric and EVM, and integrate under Eaton Vance Distributors, Inc. (EVD) the distribution teams serving our clients and business partners in the registered investment advisor and multi-family office market. To support this initiative, in the fourth quarter of fiscal 2019 the Company accelerated the repurchase of all capital and profit interests held by current and former employees of Parametric at fair value in a series of private transactions. Fair value reflects the unadjusted per unit equity value of Parametric utilizing an appraisal prepared by an independent valuation firm and approved by management as described in Note 13 under the heading Atlanta Capital and Parametric Phantom Incentive Plans. Details of these accelerated repurchases, which totaled $73.5 million, are further described below.

Parametric Plan

In the fourth quarter of fiscal 2019, the Company accelerated the repurchase of the remaining outstanding capital and profit interests granted under the Parametric Portfolio Associates LLC Long-Term Equity Plan pursuant to a tender offer for $61.2 million.

Parametric Risk Advisors

In the fourth quarter of fiscal 2019, the Company accelerated the repurchase of all capital and profit interests related to the Parametric Risk Advisors Unit Acquisition Agreement for $12.3 million.

Calvert Research and Management (Calvert)

In fiscal 2017, the Company acquired substantially all of the assets of Calvert Investment Management, Inc. The fair value of the gross assets acquired was concentrated in a single identifiable intangible asset related to contracts acquired to manage and distribute sponsored mutual funds (Calvert Funds). The Calvert Funds are a diversified family of mutual funds, encompassing actively and passively managed equity, fixed and floating-rate income, and multi-asset strategies managed in accordance with the Calvert Principles for Responsible Investment or other responsible investment criteria.

WaterOak Advisors, LLC (WaterOak)

In the fourth quarter of fiscal 2020, the Company, through its wholly-owned subsidiary Eaton Vance Investment Counsel, acquired substantially all of the assets of WaterOak, a wealth management firm headquartered in Winter Park, Florida. WaterOak provides asset management services to high-net-worth

individuals and institutional clients through separately managed accounts. The total cost to acquire WaterOak was $48.1 million. At closing, the Company paid $28.8 million in cash and incurred a contingent liability of $19.3 million (reported within other liabilities on the Company’s Consolidated Balance Sheet) representing future cash payments to be made based on a prescribed multiple of WaterOak’s attributable EBITDA for each twelve-month period ending October 31, 2021, 2022, 2023, and 2024. These payments are not contingent upon any member of the WaterOak team remaining an employee of the Company. The estimated fair value of the contingent liability was measured using a Monte Carlo simulation model prepared with the assistance of an independent valuation firm and approved by management (level 3 fair value measurement).

The WaterOak transaction was accounted for as an asset acquisition because substantially all of the fair value of the gross assets acquired was concentrated in a single identifiable intangible asset related to advisory agreements (client relationships). The value of the client relationships was estimated under the income approach using a multi-period excess earnings method. The key inputs in the valuation included forecasted assets under management, revenue and expenses, and a discount rate of 18 percent. The $48.1 million cost of the acquisition was allocated to assets acquired on the basis of their relative fair values. Specifically, the Company recognized $46.6 million, $1.0 million and $0.5 million of intangible assets representing acquired client relationships, assembled workforce and trademark intangible assets, respectively. Acquired client relationships and assembled workforce intangible assets will be amortized over a 15-year period and trademark intangible assets will be amortized over a 10-year period. The valuation of the contingent liability and the intangible assets were prepared with the assistance of an independent valuation firm and approved by management. No amortization expense was recognized related to these acquired intangible assets during fiscal 2020. The estimated amortization expense for these assets in each of the next five years is $16.1 million annually. Separately, as part of the acquisition, the Company assumed the right to lease certain office space in Winter Park, Florida. See Note 9 for additional information.

Subsequent to closing, the combined entities operate as Eaton Vance WaterOak Advisors.

Goodwill

The carrying amount of goodwill was $259.7 million at both October 31, 2020 and 2019. There were no changes in the carrying amount of goodwill during these periods. All acquired goodwill is deductible for tax purposes.

The Company qualitatively tested goodwill for impairment in the fourth quarter of fiscal 2020 and determined that there were no events to changes in circumstances that would more likely than not reduce the fair value of its reporting units below their carrying amount.

No impairment in the carrying amount of goodwill was recognized during the years ended October 31, 2020, 2019 or 2018.

Intangible assets

The following is a summary of intangible assets:

October 31, 2020
(dollars in thousands)	Weighted-Average Remaining Amortization Period (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Client relationships acquired	13.7	$	180,772	$	(119,365)	$	61,407
Intellectual property acquired	5.6		1,025		(653)		372
Trademark acquired	10.1		4,782		(1,819)		2,963
Assembled workforce acquired	15.0		1,025		-		1,025
Research system acquired			639		(639)		-
Non-amortizing intangible assets:
Mutual fund management contracts
acquired			54,408		-		54,408
Total		$	242,651	$	(122,476)	$	120,175

October 31, 2019
(dollars in thousands)	Weighted-Average Remaining Amortization Period (in years)	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Amortizing intangible assets:
Client relationships acquired	9.5	$	134,247	$	(115,921)	$	18,326
Intellectual property acquired	6.6		1,025		(586)		439
Trademark acquired	11.1		4,257		(1,558)		2,699
Research system acquired	0.2		639		(604)		35
Non-amortizing intangible assets:
Mutual fund management contracts
acquired			54,408		-		54,408
Total		$	194,576	$	(118,669)	$	75,907

No impairment in the value of amortizing or non-amortizing intangible assets was recognized during the years ended October 31, 2020, 2019 or 2018.

Amortization expense was $3.8 million, $5.0 million and $8.9 million for the years ended October 31, 2020, 2019 and 2018, respectively. Estimated amortization expense to be recognized by the Company over the next five years, on a straight-line basis, is as follows:

		Estimated
Year Ending October 31,		Amortization
(in thousands)		Expense
2021	$	5,505
2022		5,377
2023		4,977
2024		4,902
2025		4,862