Business Changes and Developments

12 Months Ended

Dec. 31, 2012

Business Changes and Developments

Note 4 – Business Changes and Developments

Year Ended December 31, 2012

Mt. Eden Investment Advisors, LLC – In October 2012, the Company, through EWM, entered into an agreement to acquire Mt. Eden, a San Francisco-based registered investment advisor. The terms of the acquisition include $6,917 of cash and $2,694 of EWM equity paid to the sellers at closing, as well as contingent consideration of $282 subject to the retention of client relationships. The transaction was consummated on December 28, 2012. The transaction resulted in goodwill of $6,500 and intangible assets relating to client relationships, non-compete agreements and other intangibles of $3,630, $169 and $445, respectively, recognized in the Investment Management Segment. The intangible assets are being amortized over estimated useful lives ranging from two to 10 years. As of December 31, 2012, the company is in the process of finalizing the valuation work related to this transaction. In addition, upon closing the Company funded the repayment of $1,047 of outstanding Mt. Eden debt.

Year Ended December 31, 2011

Lexicon Partnership LLP – On August 19, 2011, the Company completed its acquisition of all of the outstanding partnership interests of Lexicon, in accordance with the definitive sale and purchase agreement entered into on June 7, 2011, for consideration consisting of cash and stock. In the aggregate, the sellers will receive approximately £46,142, or $76,167, in cash and 1,911 shares of the Company’s Class A common stock, par value $0.01 per share (“Class A Shares”). Of the total consideration, £31,598, or $52,160, in cash was paid and 28 Class A Shares were issued to the sellers at closing, and approximately £5,619, or $9,274, in cash was paid to the sellers on December 31, 2011. Payment of the remaining approximately £8,925, or $14,733, in cash and 1,883 restricted Class A Shares was deferred and vests under graded vesting in various installments over a four-year period. Accordingly, these amounts are being expensed over the graded vesting period and included in Employee Compensation and Benefits expense. This deferred consideration, whether in the form of Class A Shares or cash, upon vesting, will be delivered to the sellers on the earlier of (i) the first anniversary of the relevant vesting date and (ii) the date of the first secondary offering by the Company following the relevant vesting date. Vesting of the Class A Shares and cash consideration will accelerate in certain circumstances, including, but not limited to, a seller’s termination without cause, a qualifying retirement or upon a change of control. In addition, upon closing the Company funded the repayment of £5,039, or $8,318, of outstanding Lexicon capital notes. These notes are included as Long-term Debt in the table below.

Lexicon was purchased to expand the Company’s advisory capabilities.

The purchase price of the acquisition has been allocated to the assets acquired and liabilities assumed using the fair values as determined by management as of the acquisition date. The computation of goodwill was based on the fair value at August 19, 2011. The purchase price allocation is as follows:

	Amount
Purchase Price:
Cash Paid	$	52,160
Fair Value of Shares Issued		636
Fair Value of Deferred Cash Consideration		9,274
Total Fair Value of Purchase Price		62,070
Fair Value of Assets Acquired and Liabilities Assumed:
Cash and Cash Equivalents		21,812
Accounts Receivable		7,821
Prepaid Expenses		9,504
Fixed Assets		429
Other Assets		964
Intangible Assets		7,164
Current Liabilities		(21,592	)
Long-term Debt		(8,318	)
Identifiable Net Assets		17,784
Goodwill Resulting from Business Combination	$	44,286

In conjunction with the acquisition, the Company recognized accounts receivable with a gross value of $7,821, which approximates fair value, all of which are expected to be collected. The goodwill reflects the replacement cost of an assembled workforce associated with personal reputations, relationships and business specific knowledge, as well as the value of expected synergies. The total amount of goodwill is expected to be deductible for tax purposes.

In connection with the acquisition of Lexicon, the Company recorded client related intangible assets of $7,164. Management views client related assets as the primary intangible assets of Lexicon. The intangible assets were valued at the date of acquisition at their fair value as determined by management. The intangible assets were amortized over an estimated useful life of six months. The Company recognized $2,089 and $5,075 of amortization expense related to these intangible assets for the years ended December 31, 2012 and 2011, respectively.

Goodwill and intangible assets recognized as a result of this acquisition are included in the Investment Banking Segment.

During the fourth quarter of 2011, the Company fully integrated the operations of Lexicon in its existing operations. Accordingly, operating costs can not be explicitly segregated and it is not possible to measure the marginal operating income attributable to the business. Below is an estimate of the operating income of the business based on estimated expenses derived from Lexicon’s historical expense run-rate. The Company’s consolidated results for the year ended December 31, 2011, included revenue of $41,637 and estimated operating expenses of $32,073, resulting in estimated operating income of $9,564 related to Lexicon from the period of acquisition, August 19, 2011 to December 31, 2011, before taking into consideration certain acquisition related charges, as follows. The Company also incurred $23,587 of other expenses related to the Lexicon acquisition, which included $14,618 of acquisition related compensation charges, $3,894 of Special Charges and $5,075 of intangible amortization expense associated with the acquisition of Lexicon. See Note 5 for a further explanation of Special Charges and Note 22 for a further explanation of Other Expenses.

If the acquisition of Lexicon was effective as of January 1, 2010, the operating results of the Company, on a pro forma basis, would have been:

	For the Years Ended December 31,
	2011		2010
	(Unaudited)
Net Revenues	$	575,344	$	446,174
Pre-tax Income	$	31,325	$	18,650
Net Income from Continuing Operations Attributable to Evercore Partners Inc.	$	4,635	$	2,504
Diluted Net Income Per Share from Continuing Operations Available to Evercore Partners Inc.	$	0.15	$	0.10

ABS Investment Management, LLC – On December 29, 2011, the Company completed its acquisition of a 45% non-controlling interest in ABS, a Connecticut based institutionally focused hedge fund-of-funds manager, for a cash purchase price of $45,104, subject to certain adjustments after the closing, as set forth in the Purchase Agreement. Following the consummation of the transaction, the remaining 55% of the interest in ABS is owned by the founders of ABS and its employees. ABS is governed by a five member management committee consisting of three members of ABS’ management team and two designees of the Company. The Company does not have majority voting power and therefore the Company does not maintain the unilateral ability to control significant operational or corporate governance matters of ABS and the founders of ABS have certain protective and participating rights which include the ability to block certain corporate actions relating to liquidation or sale of any material assets, approval of any material transaction outside of the ordinary course of business and approval of the annual budget and compensation arrangements. Accordingly, this transaction is accounted for as an equity method investment.

Evercore Asset Management – In October 2011, EAM announced its plan to wind down its business. Management and the Company made this decision because EAM was unable to attain sufficient scale to be a viable business due to several factors including the ongoing effects of the financial crisis. Accordingly, at this time it was determined there would be no future cash inflows from EAM. As a result, during the third quarter of 2011 the Company concluded that EAM’s client-based intangible assets had no future value, which resulted in a $975 charge included within Income (Loss) from Discontinued Operations related to the write-off of these intangibles.

EAM had pretax losses of $4,198 and $2,618 reported in discontinued operations for the years ended December 31, 2011 and 2010, respectively.

Goodwill and Intangible Assets

Goodwill associated with the Company’s acquisitions is as follows:

	Investment Banking			Investment Management			Total
Balance at December 31, 2010	$	43,199		$	95,832		$	139,031
Acquisitions		44,286			80			44,366
Foreign Currency Translation and Other		(5,548	)		—			(5,548	)
Balance at December 31, 2011		81,937			95,912			177,849
Acquisitions		—			6,500			6,500
Foreign Currency Translation and Other		4,415			(80	)		4,335
Balance at December 31, 2012	$	86,352		$	102,332		$	188,684

Intangible assets associated with the Company’s acquisitions are as follows:

	December 31, 2012
	Gross Carrying Amount						Accumulated Amortization
	Investment Banking		Investment Management		Total		Investment Banking		Investment Management		Total
Client Related	$	2,300	$	46,960	$	49,260	$	969	$	16,412	$	17,381
Acquired Mandates		1,810		—		1,810		1,324		—		1,324
Non-compete/Non-solicit Agreements		135		1,949		2,084		67		920		987
Other		—		2,245		2,245		—		310		310
Total	$	4,245	$	51,154	$	55,399	$	2,360	$	17,642	$	20,002
	December 31, 2011
	Gross Carrying Amount						Accumulated Amortization
	Investment Banking		Investment Management		Total		Investment Banking		Investment Management		Total
Client Related	$	17,835	$	43,250	$	61,085	$	13,874	$	10,197	$	24,071
Acquired Mandates		1,810		—		1,810		836		—		836
Non-compete/Non-solicit Agreements		135		1,780		1,915		40		564		604
Other		—		1,800		1,800		—		190		190
Total	$	19,780	$	46,830	$	66,610	$	14,750	$	10,951	$	25,701

Expense associated with the amortization of intangible assets was $10,872, $14,315 and $7,541for the years ended December 31, 2012, 2011 and 2010, respectively.

Based on the intangible assets above, as of December 31, 2012, annual amortization of intangibles for each of the next five years is as follows:

2013	$	7,962
2014	$	5,668
2015	$	4,008
2016	$	3,627
2017	$	3,237

The Company concluded that there was no impairment of Goodwill or Intangible Assets during the year ended December 31, 2012.