2. Acquisitions and Dispositions

Acquisitions

The following table presents a summary of the acquisition-date fair values of the assets acquired and liabilities assumed for each of Legg Mason's significant acquisitions completed during the periods presented:



	EnTrust Capital				Clarion Partners
Acquisition Date	May 2, 2016				April 13, 2016
Purchase price
Cash	$	400,000			$	631,476
Performance-based Legg Mason restricted share units	—				11,121
Minority equity interest transferred	140,000			⁽¹⁾	—
Total consideration	540,000				642,597
Fair value of noncontrolling interests	247,700			⁽¹⁾	105,300
Total	787,700				747,897
Identifiable assets and liabilities
Cash	8,236				25,307
Investments	16,220				22,285
Receivables	20,820				53,657
Indefinite-life intangible fund management contracts	262,300				505,200
Indefinite-life trade name	7,400				23,100
Amortizable intangible asset management contracts	65,500				102,800
Fixed assets	4,479				8,255
Other current assets (liabilities), net	1,030				(25,585		)
Liabilities, net	(8,823		)		(10,579		)
Deferred tax liabilities	—				(36,788		)
Total identifiable assets and liabilities	377,162				667,652
Goodwill	$	410,538			$	80,245


(1)	Post combination EnTrustPermal noncontrolling interest of $403,200 also included a fair value reclassification of $15,500 from retained earnings at the time of the acquisition.

EnTrust Capital

On May 2, 2016, Legg Mason acquired EnTrust and combined it with Permal, Legg Mason's existing hedge fund platform, to form EnTrustPermal, which was renamed EnTrust Global in March 2019. EnTrust, an alternative asset management firm headquartered in New York, had $9,600,000 in assets under management ("AUM") and approximately $2,000,000 in assets under advisement and committed capital at closing, and largely complementary investment strategies, investor base, and business mix to Permal. The transaction included a cash payment of $400,000, which was funded with borrowings under Legg Mason's revolving credit facility, as well as a portion of the proceeds from the issuance of $450,000 of 4.75% Senior Notes due 2026 (the "2026 Notes") and $250,000 of 6.375% Junior Subordinated Notes due 2056 (the "6.375% 2056 Notes") in March 2016. As a result of the combination, Legg Mason owns 65% of the new entity, EnTrust Global, with the remaining 35% owned by EnTrust's co-founder and managing partner.

The fair value of the acquired amortizable intangible asset management contracts had a useful life of approximately eight years at acquisition. Purchase price allocated to intangible assets and goodwill is expected to be deductible for U.S. tax purposes over a period of 15 years. Goodwill is principally attributable to synergies expected to arise with EnTrust.

Management estimated the fair values of the indefinite-life intangible fund management contracts, indefinite-life trade name, and amortizable intangible asset management contracts based upon discounted cash flow analyses, using unobservable market data inputs, which are Level 3 measurements. The significant assumptions used in these analyses at acquisition, including projected annual cash flows, projected AUM growth rates and discount rates, are summarized as follows:



	Projected Cash Flow Growth	Discount Rate
Indefinite-life intangible fund management contracts	(1)% to 5% (weighted-average: 4%)	14.5%
Indefinite-life trade name	6% to 14% (weighted-average: 6%)	14.5%

	Projected AUM Growth / (Attrition)	Discount Rate
Amortizable intangible asset management contracts	10% / (13)%	13.5%

After the completion of the annual impairment testing process in fiscal 2017, the indefinite-life funds management contracts asset related to the EnTrust acquisition was combined with the indefinite-life funds-of-hedge funds management contracts asset related to the legacy Permal business. In connection with Legg Mason's annual impairment testing process in fiscal 2019 and 2018, the combined EnTrust Global indefinite-life funds management contracts asset was impaired by $274,600 and $195,000, respectively. In fiscal 2019, the combined trade name asset was also impaired by $18,200. See Note 5 for additional information.

Costs incurred in connection with the acquisition of EnTrust were $7,046 during the year ended March 31, 2017.

The financial results of EnTrust included in Legg Mason's consolidated financial results for the year ended March 31, 2017, included revenues of $115,327 and did not have a material impact on Net Income (Loss) Attributable to Legg Mason, Inc.

In connection with the combination of EnTrust and Permal, Legg Mason incurred aggregate charges for restructuring and transition costs totaling $93,598 through completion of the plan in fiscal 2019, $1,468, $7,049, and $41,785, of which were recognized during the years ended March 31, 2019, 2018, and 2017, respectively. These costs were primarily comprised of charges for employee termination benefits, including severance and retention incentives, which were recorded as Transition-related compensation, in the Consolidated Statements of Income (Loss), and real estate related charges, which were recorded as Occupancy, in the Consolidated Statements of Income (Loss).

The table below presents a summary of changes in the restructuring and transition-related liability and cumulative charges incurred through the completion of the plan:



	Compensation			Other				Total
Balance as of December 31, 2015	$	—		$	—			$	—
Accrued charges	31,581			9,981			(1)	41,562
Payments	(21,938		)	(2,097		)		(24,035		)
Balance as of March 31, 2016	9,643			7,884				17,527
Accrued charges	22,891			11,075			(1)	33,966
Payments	(29,211		)	(12,408		)		(41,619		)
Balance as of March 31, 2017	3,323			6,551				9,874
Accrued charges	2,010			1,247				3,257
Payments	(5,164		)	(5,048		)		(10,212		)
Balance as of March 31, 2018	169			2,750				2,919
Accrued charges	662			546				1,208
Payments	(831		)	(3,296		)		(4,127		)
Balance as of March 31, 2019	$	—		$	—			$	—
Non-cash charges⁽²⁾
Year ended March 31, 2016	$	591		$	1,143			$	1,734
Year ended March 31, 2017	4,423			3,396				7,819
Year ended March 31, 2018	3,788			4				3,792
Year ended March 31, 2019	260			—				260
Total	$	9,062		$	4,543			$	13,605

Cumulative charges incurred through March 31, 2019	$	66,206		$	27,392			$	93,598

(1) Includes lease loss reserve for space permanently abandoned of $9,069 for the year ended March 31, 2017, and $7,212 for the year ended March 31, 2016.

(2) Includes stock-based compensation expense and accelerated fixed asset depreciation.

Clarion Partners

On April 13, 2016, Legg Mason acquired a majority equity interest in Clarion Partners, a diversified real estate asset management firm headquartered in New York. Clarion Partners managed approximately $41,500,000 in AUM on the date of acquisition. Legg Mason acquired an 82% ownership interest in Clarion Partners for a cash payment of $631,476 (including a payment for cash delivered of $36,772 and co-investments of $16,210), which was funded with a portion of the proceeds from the issuance of the 2026 Notes and the 6.375% 2056 Notes in March 2016. The Clarion Partners management team retained 18% of the outstanding equity in Clarion Partners. The Clarion Partners management team also retained rights to the full amount of performance fee revenues earned on historic AUM in place as of the closing of the acquisition. Performance fees earned on this historic AUM are fully passed through to employees as compensation, per the terms of the acquisition agreement, and recorded as compensation expense. Legg Mason expects the full pass through of performance fees to phase out by fiscal 2022. The firm's previous majority owner sold its entire ownership interest in the transaction.

Upon the acquisition, Legg Mason also granted certain key employees of Clarion Partners a total of 716 performance-based Legg Mason restricted share units with an aggregate fair value of $11,121, which vest upon Clarion Partners achieving a certain level of EBITDA, as defined in the award agreements, within a designated period after the closing of the acquisition. The aggregate value of the award was included in the purchase price and was determined as of the grant date using a Monte Carlo pricing model with the following assumptions:



Long-term EBITDA growth rate	6.0	%
Risk-free interest rate	2.3	%
Expected volatility:
Legg Mason	38.0	%
Clarion Partners	30.0	%

In connection with the transaction, Legg Mason also implemented an affiliate management equity plan for the management team of Clarion Partners, which resulted in a non-cash charge of $15,200 in the three months ended June 30, 2016. See Note 11 for additional information related to the Clarion Partners management equity plan.

The fair value of the acquired amortizable intangible asset management contracts had an average useful life of approximately 10 years at acquisition. Approximately 86% of the purchase price allocated to intangible assets and goodwill is expected to be deductible for U.S. tax purposes over a period of 15 years. Goodwill is principally attributable to synergies expected to arise with Clarion Partners.



	Projected Cash Flow Growth	Discount Rate
Indefinite-life intangible fund management contracts	6% to 20% (weighted-average: 6%)	13.5%
Indefinite-life trade name	5% to 17% (weighted-average: 6%)	13.5%

	Projected AUM Growth / (Attrition)	Discount Rate
Amortizable intangible asset management contracts:	7% / (10)%	13.4%

In addition to the previously discussed charge of $15,200 incurred in connection with the implementation of the Clarion Partners management equity plan, during the year ended March 31, 2017, there were $10,757 of costs incurred in connection with the acquisition of Clarion Partners.

The financial results of Clarion Partners included in Legg Mason's consolidated financial results for the year ended March 31, 2017, included revenues of $249,468 and did not have a material impact to Net Income (Loss) Attributable to Legg Mason, Inc.

Pro Forma Financial Information

The following unaudited pro forma financial information presents the combined financial results of Legg Mason, Clarion Partners, and EnTrust, for the initial period of the acquisitions as if each acquisition had occurred on April 1, 2015. The unaudited pro forma financial information reflects certain adjustments for amortization expense related to the fair value of acquired intangible assets, acquisition- and transition-related costs, interest expense related to debt incurred to finance the acquisitions, and the income tax impact of the pro forma adjustments. The unaudited pro forma financial information is for informational purposes only, excludes projected cost savings, and is not necessarily indicative of the financial results that would have been achieved had the acquisitions actually occurred at the beginning of the first period presented.



	Year ended March 31, 2017
Revenues	$	2,904,253
Net Income Attributable to Legg Mason, Inc.	272,985
Net Income Per Share Attributable to Legg Mason, Inc. Shareholders:
Basic	$	2.63
Diluted	2.62

Financial Guard, LLC

On August 17, 2016, Legg Mason acquired 82% of the equity interests in Financial Guard, LLC ("Financial Guard"), an online registered investment advisor and technology-enabled wealth management and investment advice platform. The acquisition required an initial cash payment, which was funded with existing cash resources, and a potential contingent payment of up to $3,000 based on certain metrics within the first year after the acquisition. No contingent payment was due based on relevant metrics. In connection with the acquisition, Legg Mason recognized certain business assets and goodwill of $11,995. Legg Mason also committed to contribute up to $5,000 of additional working capital to Financial Guard, to be paid over the two-year period following the acquisition in August 2016, all of which has been paid as of March 31, 2019.

Precidian Investments, LLC

On January 22, 2016, Legg Mason acquired a minority equity position in Precidian Investments, LLC ("Precidian"), a firm specializing in creating innovative products and solutions and solving market structure issues, particularly with regard to the ETF marketplace. The transaction required a cash payment, which was funded from existing cash resources. Under the terms of the transaction, Legg Mason acquired series B preferred units of Precidian that entitle Legg Mason to approximately 20% of the voting and economic interests of Precidian, along with customary preferred equity protections.

At its sole option, during the 48 months following the initial investment, Legg Mason may, subject to satisfaction of certain closing conditions and upon payment of further consideration, convert its preferred units to 75% of the common equity of Precidian on a fully diluted basis.

Legg Mason accounts for its investment in Precidian, which is included in Other non-current assets in the Consolidated Balance Sheets as of March 31, 2019 and 2018, under the equity method of accounting.

Other

On April 10, 2019, Clarion Partners acquired a majority stake in Gramercy Europe (Jersey) Limited, a European real estate investment business specializing in pan-European logistics and industrial assets. The transaction required an initial cash payment of $11,206, which was paid using existing cash resources, and a potential contingent consideration payment of up to approximately $3,735 (using the foreign exchange rate as of April 10, 2019, for the €3,315 potential payment), due on the fifth anniversary of closing.

Contingent Consideration

Certain acquisitions provided for potential contingent consideration payments. The following table presents a summary of the changes in the contingent consideration liability:



	RARE Infrastructure			Martin Currie			QS Investors			Other⁽¹⁾			Total
Acquisition Date	October 21, 2015			October 1, 2014			May 30, 2014			Various
Cash paid at acquisition	$	213,739		$	202,577		$	11,000		$	700		$	428,016
Contingent Consideration Liability
Balance as of March 31, 2016	$	27,145		$	41,222		$	13,749		$	2,469		$	84,585
Initial purchase accounting accrual	—			—			—			2,000			2,000
Payment	—			—			(6,587		)	—			(6,587		)
Fair value adjustments⁽²⁾	(10,000		)	(25,000		)	(2,500		)	(2,000		)	(39,500		)
Foreign exchange and accretion	299			(4,204		)	179			38			(3,688		)
Balance as of March 31, 2017	17,444			12,018			4,841			2,507			36,810
Initial purchase accounting accrual	—			—			—			1,900			1,900
Fair value adjustments⁽²⁾	(17,413		)	(13,355		)	(1,300		)	739			(31,329		)
Foreign exchange and accretion	(31		)	1,337			166			(4		)	1,468
Payment	—			—			—			(3,242		)	(3,242		)
Balance as of March 31, 2018 ⁽³⁾	—			—			3,707			1,900			5,607
Fair value adjustments⁽²⁾	—			—			571			—			571
Foreign exchange, accretion and other	—			—			41			65			106
Payment	—			—			(4,319		)	(550		)	(4,869		)
Balance as of March 31, 2019 ⁽³⁾	$	—		$	—		$	—		$	1,415		$	1,415


(1)	Includes amounts related to two small acquisitions completed in December 2017 and the acquisition of PK Investment Management, LLP ("PK Investments") on December 31, 2015.


(2)	Included in Contingent consideration fair value adjustments in the Consolidated Statements of Income (Loss).


(3)	As of March 31, 2019, $1,415 was included in Other non-current liabilities on the Consolidated Balance Sheet. As of March 31, 2018, $3,707 was included in Other current liabilities and $1,900 was included in Other non-current liabilities in the Consolidated Balance Sheet.

RARE Infrastructure Limited

In October 2015, Legg Mason acquired a majority interest in RARE Infrastructure Limited ("RARE Infrastructure"). The terms of the related transaction agreements provided for potential contingent consideration payments as of March 31, 2017 and 2018, and potential catch-up adjustments through March 31, 2019, however, no such payments were due based on relevant net revenue targets.

Martin Currie (Holdings) Limited

In October 2014, Legg Mason acquired all outstanding equity interests in Martin Currie (Holdings) Limited ("Martin Currie"). The acquisition agreement provided for potential first, second, and third anniversary contingent payments due as of March 31, 2016, 2017, and 2018, respectively; however, no such payments were due based on relevant financial metrics. A provision of the share purchase agreement required certain amounts of any contingent consideration due to be paid to the Martin Currie pension plan to fund a portion of the net plan benefit obligation. No such funding occurred because no contingent payments were due. See Note 9 for additional information regarding the Martin Currie pension plan.

The contingent consideration provisions of the share purchase agreement also required a designated percentage of the earn-out payments, net of any pension contribution, to be allocated to fund an incentive plan for Martin Currie's management. The estimated payment (adjusted quarterly) was amortized over the earn-out term. Because no contingent consideration was due, no payments were due to employees under the arrangement and the related compensation expense was reversed during the year ended March 31, 2018.

Other

In December 2015, Martin Currie acquired certain assets of PK Investments. During the year ended March 31, 2018, Legg Mason paid all contingent consideration due of $3,242.

QS Investors Holdings, LLC

In May 2014, Legg Mason acquired all of the outstanding equity interests of QS Investors. In August 2016, Legg Mason paid contingent consideration of $6,587 for the second anniversary payment and in September 2018, Legg Mason paid $4,319 for the final installment of contingent consideration.

Dispositions

On December 23, 2016 and March 31, 2017, Legg Mason sold all of its ownership interests in each of a small equity advisor in Poland and a small Boston-based private equity advisor. Also, on February 24, 2017, Legg Mason liquidated its share of a small equity advisory joint venture. Net proceeds from these transactions received in the year ended March 31, 2017, were $19,469 and the transactions did not have a material impact on Legg Mason's consolidated financial condition or results of operations. During the years ended March 31, 2019 and 2018, Legg Mason received additional contingent proceeds of $932 and $3,462, respectively.