ACQUISITION OF KAPSTREAM

9 Months Ended

Sep. 30, 2015

ACQUISITION OF KAPSTREAM

ACQUISITION OF KAPSTREAM

Note 2 — Acquisition of Kapstream

On July 1, 2015, JCG announced and closed the acquisition of a controlling 51% voting interest in Kapstream Capital Pty Limited (“Kapstream”), a global macro fixed income asset manager located in Australia. The acquisition serves to further expand JCG’s fixed income capabilities and build out its global macro fixed income team. JCG has an option to purchase the remaining 49% interest from Kapstream management on the third and fourth anniversaries of the acquisition.

The transaction included an initial upfront cash consideration of $84.1 million and contingent consideration with a present value of $6.0 million, with the contingent consideration payable at 18 and 36 months after acquisition if certain Kapstream assets under management reach defined targets. At September 30, 2015, the contingent consideration had a fair value of $5.6 million.

The Company also acquired certain distribution rights for an additional cash consideration of $3.9 million. The Company incurred $2.1 million in investment bank advisory fees and other deal costs during the second quarter 2015 related to the acquisition. The deal costs are included in general, administrative and occupancy on JCG’s Condensed Consolidated Statements of Comprehensive Income.

JCG completed a preliminary allocation of the July 1, 2015 purchase price to the acquired assets during the third quarter 2015. The total purchase price was allocated as follows (in millions):

Assets:
Cash and cash equivalents	$	7.3
Investment securities	4.4
Accounts receivable	4.6
Intangible assets	114.7
Goodwill	90.1
Other current assets	3.1
Other non-current assets, net	0.1
Liabilities:
Contingent consideration	(6.0		)
Deferred income taxes	(34.4		)
Other accrued liabilities	(10.2		)
Noncontrolling interests	(85.7		)
Net assets acquired	$	88.0

Goodwill represents the excess of cost over the fair value of the identifiable net assets acquired and is largely attributable to the existing workforce of Kapstream. The acquisition will expand JCG’s fixed income capabilities and reinforce the Company’s efforts to build a global macro fixed income team. The goodwill recognized as a result of the acquisition is not deductible for tax purposes.

The intangible assets include investment management agreements, client relationships and trade name. The client relationships have an estimated useful life of 10 years and are being amortized over the 10-year period. The investment management agreements and trade name have an indefinite life and as such, are not being amortized.

Noncontrolling interests were recognized on the Condensed Consolidated Balance Sheets for the 49% interest in Kapstream held by Kapstream management. The fair value of the noncontrolling interests as of the acquisition date of July 1, 2015, was $85.7 million.

Kapstream’s functional currency is the Australian dollar. Assets and liabilities of Kapstream are translated into U.S. dollars at current exchange rates as of the end of each accounting period. Related revenue and expenses are translated at average exchange rates during the accounting period. Net translation gains and losses are excluded from income and recorded in other comprehensive loss on the Company’s Condensed Consolidated Statements of Comprehensive Income. JCG recognized a foreign currency translation loss of $7.5 million for the three months ended September 30, 2015, related to the translation of Kapstream financial statements.