Acquisition

On April 1, 2015, the Company acquired 100% ownership of Cogent (the "Acquisition") in exchange for a combination of (i) approximately $44.0 million in cash and 779,454 shares of Greenhill common stock paid at closing and (ii) approximately $18.9 million in cash and 334,048 shares of Greenhill common stock payable in the future if certain agreed revenue targets are achieved (the "Earnout"). The cash component of the consideration paid at closing was funded by two bank term loan facilities, each in an original principal sum of $22.5 million, and together in aggregate $45.0 million. See "Note 8 — Bank Loan Facilities".

The cash payment and the issuance of common shares related to the Earnout will be made if Greenhill Cogent achieves a revenue target during either the two year period ending on the second anniversary of the closing or the two year period ending on the fourth anniversary of the closing. If the revenue target is achieved, the contingent consideration will be paid on the second or fourth anniversary date of the closing, as applicable. If the revenue target is achieved during both Earnout periods, only one payment will be made at the end of the first Earnout period. If the revenue target is not achieved during either of the two year Earnout periods, a payment will not be made. The fair value of the contingent issuance of common shares was valued on the date of the Acquisition at $11.9 million and has been recorded as a component of equity in the condensed consolidated statement of financial condition. The fair value of the contingent cash consideration was valued on the date of the Acquisition at $13.1 million and will be remeasured quarterly based on a probability weighted present value discount that the revenue target may be achieved. See "Note 6 — Fair Value of Financial Instruments".

The Acquisition has been accounted for using the purchase method of accounting and the results of operations for Greenhill Cogent have been included in the condensed consolidated statements of income from the date of acquisition. The Company incurred $1.2 million of costs related to the Acquisition which have been included as a component of professional fees in the condensed consolidated statement of income for the period ended June 30, 2015.

A preliminary allocation of the total purchase price of approximately $100.0 million has been made to the assets acquired and liabilities assumed based on their fair values as of April 1, 2015, the date of the acquisition, as follows (in thousands, unaudited):




Preliminary allocation of assets acquired and liabilities assumed:
Assets:
Current assets	$	13,970
Property and equipment	1,214
Other assets	651
Identifiable intangible assets	1,300
Goodwill	92,981
Total assets	110,116
Liabilities:
Current liabilities	9,621
Deferred tax liability	500
Total liabilities	10,121
Net assets	$	99,995

The excess of the purchase price over the fair value of the net assets acquired of $93.0 million has been recorded as goodwill. Goodwill includes the in-place workforce, which allows the Company to continue serving its existing client base, begin marketing to potential clients and avoid significant costs reproducing the workforce.

The estimated fair value of the intangible assets acquired, which consist of Cogent's backlog of client assignments that existed at the time of the closing, customer relationships, and trade name, is based, in part, on a valuation using an income approach, market approach or cost approach and has been included in other assets on the condensed consolidated statement of financial condition as of June 30, 2015. The estimated fair value ascribed to the identifiable intangible assets will be amortized on a straight-line basis over the estimated remaining useful life of each asset over periods ranging between one to three years. For the three and six months ended June 30, 2015, the Company recorded amortization expense of $0.2 million in respect of these assets.

The total purchase includes an escrow amount of $8.9 million, which is held by a third party agent, and may be used to cover potential post-closing obligations of the sellers prior to the first anniversary of the closing.

Under the terms of the purchase, the purchase price is subject to a post-closing adjustment based upon Cogent's net working capital, as defined, as of March 31, 2015. Included in accrued expense in the condensed consolidated statement of financial condition as of June 30, 2015 is an amount due to sellers of approximately $3.0 million.

The Acquisition will be treated as an asset purchase for tax purposes. Similar to the purchase accounting method used for book purposes, the excess of the purchase price paid over the fair value of the net assets acquired will be recorded as goodwill for tax purposes. The amount of goodwill recorded for tax purposes will be determined based on the consideration paid at closing and will be amortized for tax purposes ratably over a fifteen year period. If the Earnout is achieved, the additional consideration paid will also be treated as goodwill for tax purposes and will be amortized ratably over the remainder of the fifteen year period. For book purposes, the tax benefit realized from the amortization of goodwill will be recorded as a deferred tax liability.

Consistent with the Company's normal personnel recruiting policies, and in order to provide long term incentives for retention and continued strong performance, Greenhill also granted restricted stock units and other deferred compensation awards to a number of Cogent employees, subject to continued employment. The awards will generally vest on the third or fifth anniversary of the Acquisition. The awards have not been recorded as a component of the purchase price and will be expensed over the service period during which they are earned.

Set forth below are the Company's summary unaudited pro forma results of operations for the six months ended June 30, 2015 and the three and six months ended June 30, 2014. The unaudited pro forma results of operations for the six months ended June 30, 2015 include the historical results of the Company and give effect to the Acquisition if it had occurred on January 1, 2015. These pro forma results include the actual results of Cogent from January 1, 2015 through March 31, 2015. For the period April 1, 2015 through June 30, 2015, Cogent's results were included in the consolidated results of the Company. The unaudited results of operations for the three and six months ended June 30, 2014 include the historical results of the Company and give effect to the Acquisition as if it had occurred on January 1, 2014. The pro forma amounts include Cogent's actual results for the three and six months ended June 30, 2014. See "Note 9 — Equity" and "Note 10 — Earnings per Share".

The unaudited pro forma results of operations do not purport to represent what the Company's results of operations would actually have been had the Acquisition occurred on January 1, 2015, or to project the Company's results of operations for any future period. Actual future results may vary considerably based on a variety of factors beyond the Company's control.



	For the Three Months Ended June 30,
	2015		2014
	(in millions, except per share amounts) (unaudited)
	(actual)		(pro forma)
Revenues	$	73.4	$	67.9
Income before taxes	15.8		12.3
Net income allocated to common stockholders	9.4		7.9
Diluted earnings per share	$	0.30	$	0.26



	For the Six Months Ended June 30,
	2015		2014
	(in millions, except per share amounts) (unaudited)
	(pro forma)		(pro forma)
Revenues	$	145.7	$	116.1
Income before taxes	29.8		12.5
Net income allocated to common stockholders	18.2		8.1
Diluted earnings per share	$	0.59	$	0.26

The pro forma results include (i) compensation and benefits expense based upon a ratio of compensation to total revenues of 54%, the rate used by the Company in the pro forma periods presented, (ii) the amortization of identifiable intangible assets of Cogent, (iii) the estimated interest expense related to the bank term loan borrowings used to fund the Acquisition, (iv) the elimination of non-recurring revenue and expense items of Cogent which were directly attributable to the Acquisition, and (v) the estimated income tax expense related to the historical earnings of Cogent's earnings, which as a result of the Acquisition, will be subject to income tax at the effective tax rate of the Company.