Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2017

There were no Level 1 or Level 2 assets or liabilities measured in the fair value hierarchy during the three months ended March 31, 2017 and 2016. There were no Level 3 assets measured at fair value during the three months ended March 31, 2017 and 2016.

In connection with the acquisition of Cogent Partners, LP and its affiliates ("Cogent") (now known as our secondary advisory business), the Company agreed to pay to the sellers in the future $18.9 million in cash and 334,048 shares of Greenhill common stock if certain agreed revenue targets are achieved (the "Earnout"). 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. The revenue target was not achieved during the first two year period ending on March 31, 2017. If the revenue target is achieved during the second two period ending on March 31, 2019, the contingent consideration will be paid promptly after that date. If the revenue target is not achieved during the remaining two year earnout period, a payment will not be made. The fair value of the contingent cash consideration was valued on the date of the acquisition at $13.1 million and is remeasured quarterly based on a probability weighted present value discount that the revenue target may be achieved. During the three months ended March 31, 2017, the Earnout for the first two year period was not achieved. Accordingly, the fair value of the contingent cash consideration at March 31, 2017 was remeasured, based on the probability weighted present value that the revenue target will be achieved on the second two year earnout period provided for in the acquisition agreement, at a value of $9.1 million and the Company recognized a decrease in other operating expenses of $6.0 million for the three month period ending March 31, 2017. See "Note 9 - Earnings Per Share".

The following table sets forth the measurement at fair value on a recurring basis of the contingent cash consideration due the selling unitholders of Cogent related to the Earnout. The liability arose as a result of the acquisition of Cogent and is categorized as a Level 3 liability, which is remeasured each quarterly period based on the probability of achieving the target revenue threshold and weighted average discount rate as discussed below.

Liabilities Measured at Fair Value on a Recurring Basis as of March 31, 2017



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of March 31, 2017
	(in thousands, unaudited)
Liabilities
Contingent obligation due selling unitholders of Cogent	$	—	$	—	$	9,090	$	9,090
Total	$	—	$	—	$	9,090	$	9,090

Liabilities Measured at Fair Value on a Recurring Basis as of December 31, 2016



	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Balance as of December 31, 2016
	(in thousands, unaudited)
Liabilities
Contingent obligation due selling unitholders of Cogent	$	—	$	—	$	15,095	$	15,095
Total	$	—	$	—	$	15,095	$	15,095

Changes in Level 3 liabilities measured at fair value on a recurring basis for the three month periods ended March 31, 2017 are as follows:



	Opening Balance as of January 1, 2017		Total realized and unrealized gains (losses) included in Net Income		Unrealized gains (losses) included in Other Comprehensive Income		Purchases		Issues		Sales		Settlements		Closing Balance as of March 31, 2017		Unrealized gains (losses) for Level 3 liabilities outstanding at March 31, 2017
	(in thousands, unaudited)
Liabilities
Contingent obligation due selling unitholders of Cogent	$	15,095	$	6,005	$	—	$	—	$	—	$	—	$	—	$	9,090	$	6,005
Total	$	15,095	$	6,005	$	—	$	—	$	—	$	—	$	—	$	9,090	$	6,005

Changes in Level 3 liabilities measured at fair value on a recurring basis for the three month periods ended March 31, 2016 are as follows:



	Opening Balance as of January 1, 2016		Total realized and unrealized gains (losses) included in Net Income			Unrealized gains (losses) included in Other Comprehensive Income		Purchases		Issues		Sales		Settlements		Closing Balance as of March 31, 2016		Unrealized gains (losses) for Level 3 liabilities outstanding at March 31, 2016
	(in thousands, unaudited)
Liabilities
Contingent obligation due selling unitholders of Cogent	$	13,647	$	(385	)	$	—	$	—	$	—	$	—	$	—	$	14,032	$	(385	)
Total	$	13,647	$	(385	)	$	—	$	—	$	—	$	—	$	—	$	14,032	$	(385	)

Realized and unrealized gains (losses) are reported as a component of other operating expenses in the condensed consolidated statements of income.

The following table presents quantitative information about the significant unobservable inputs utilized by the Company in the fair value measure of Level 3 liabilities measured at fair value on a recurring basis, as of March 31, 2017:



	Fair Value as of March 31, 2017		Valuation Technique(s)	Unobservable Input(s)		Range (Weighted Average)
	(in thousands, unaudited)
Liabilities
Contingent obligation due selling unitholders of Cogent	$	9,090	Present value of expected payments	Discount rate		12	%
				Forecast revenue	(a)

_____________________________________________

(a) The Company's estimate of contingent consideration as of March 31, 2017 was principally based on the acquired business' (i) actual revenue generation from April 1, 2015 through March 31, 2017 and (ii) projected revenue generation from April 1, 2017 through March 31, 2019.

Valuation Processes - Level 3 Measurements - The Company utilizes a valuation technique based on a present value method applied to the probability of achieving a range of potential revenue outcomes. The valuation was conducted by the Company. The Company updates unobservable inputs each reporting period and has a formal process in place to review changes in fair value.

Sensitivity Analysis - Level 3 Measurements - The significant unobservable inputs used in determining fair value are the discount rate and forecast revenue information. Significant increases (decreases) in the discount rate would have resulted in a lower (higher) fair value measurement. Significant increases (decreases) in the forecast revenue information would result in a higher (lower) fair value measurement. For all significant unobservable inputs used in the fair value measurement of the Level 3 liabilities, a change in one of the inputs would not necessarily result in a directionally similar change in the other.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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