Note 3 — Acquisition

On April 1, 2015, the Company acquired 100% ownership of Cogent Partners, LP and its affiliates ("Cogent") (now known as our secondary capital advisory business), a global financial advisor to pension funds, endowments and other institutional investors on the secondary market for alternative assets, (the "Acquisition"). As consideration for the Acquisition the Company exchanged a combination of (i) $44.0 million in cash and 779,454 shares of Greenhill common stock paid at closing and (ii) $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 10 — Bank Loan Facilities".

The cash payment and the issuance of common shares related to the Earnout will be made if secondary capital advisory revenues of $80.0 million or more are earned 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 promptly after the second or fourth anniversary date of the closing, as applicable. 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 stockholders' equity in the consolidated statements 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. For the years ended December 31, 2016 and 2015, the fair value of the contingent consideration increased by $1.5 million and $0.5 million, respectively, or on a cumulative basis by $2.0 million from the value on the date of the acquisition, based on changes in the estimated probability of achievement and present value of the remaining term. Based on the revenue generated by the secondary capital advisory business from April 1, 2015 through December 31, 2016, the Company is not currently able to determine with certainty whether or not the revenue target for the period ending March 31, 2017 will be achieved. If the target is not achieved the value of the contingent cash consideration will be measured in future periods based on the present value of the probability that the revenue target may be achieved during the second two year period ending March 31, 2019. If the Earnout is achieved the Company will incur a charge to expense to adjust the value of the contingent cash consideration to its face value. See "Note 8 — Fair Value of Financial Instruments" and "Note 11 — Equity".

The Acquisition has been accounted for using the purchase method of accounting and the results of operations for the acquired secondary capital advisory business have been included in the consolidated statements of income from the date of acquisition. The Company incurred $1.2 million of transaction costs related to the Acquisition, which have been included as a component of professional fees in the consolidated statement of income for the year ended December 31, 2015.

An 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):




Allocation of assets acquired and liabilities assumed:
Assets:
Current assets	$	13,970
Property and equipment	599
Other assets	651
Identifiable intangible assets	1,300
Goodwill	93,116
Total assets	109,636
Liabilities:
Current liabilities	9,640
Total liabilities	9,640
Net assets	$	99,996

The excess of the purchase price over the fair value of the net assets acquired of $93.1 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 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 consolidated statements of financial condition. The fair value ascribed to the identifiable intangible assets will be amortized on a straight-line basis over the remaining useful life of each asset over periods ranging between one to three years. For each of the years ended December 31, 2016 and December 31, 2015, the Company recorded amortization expense of $0.5 million in respect of these assets.

In addition, under the terms of the purchase, the sellers were entitled to receive a post-closing distribution for the amount of net working capital, as defined, as of March 31, 2015, in excess of $5.0 million. The amount distributable to the sellers was $7.9 million and was paid in 2015. Further, the total purchase included at the date of acquisition an escrow amount of $8.9 million, of which $8.4 million was paid to the sellers and $0.5 million was returned to the Company in 2016.

The Acquisition was 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 was recorded as goodwill for tax purposes. The amount of goodwill recorded for tax purposes was determined based on the consideration paid at closing and is being amortized for tax purposes ratably over a fifteen years 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 years period. For book purposes, the tax benefit from the amortization of goodwill is being recorded as an indefinite-lived deferred tax liability as it is realized.

Consistent with the Company's normal personnel recruiting policies, and in order to provide long term incentives for retention and continued strong performance, the Company 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 closing. 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 years ended December 31, 2015 and December 31, 2014. The unaudited pro forma results of operations for the year ended December 31, 2015 include the historical results of the Company and give effect to the Acquisition as 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 December 31, 2015, the results of the acquired secondary capital advisory business were included in the consolidated results of the Company.

The unaudited results of operations for the year ended December 31, 2014 include the historical results of the Company and give effect to the Acquisition as if it had occurred on January 1, 2014. These pro forma amounts include Cogent's actual results for the year ended December 31, 2014. See "Note 11 — Equity" and "Note 12 — 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 January 1, 2014, as the case may be, 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 Years Ended December 31,
	2015		2014
	(in millions, except per share amounts) (unaudited)
	(pro forma)		(pro forma)
Revenues	$	272.0	$	321.2
Income before taxes	45.2		79.0
Net income allocated to common stockholders	26.8		50.8
Diluted earnings per share	$	0.84	$	1.63

The pro forma results include (i) compensation and benefits expense based upon a ratio of compensation to total revenues of 54%, which was the actual compensation ratio 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 Cogent's historical earnings, which as a result of the Acquisition, is subject to income tax at the effective tax rate of the Company.