14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT

6 Months Ended

Jun. 30, 2020

Lf Equity Income Fund Portfolio Investment

LF Equity Income Fund Portfolio Investment [Text Block]

14. LF EQUITY INCOME FUND PORTFOLIO INVESTMENT

On April 3, 2020, the Company entered into an Option Agreement with Seller, which included general terms through which the Company was provided the option to purchase life sciences equity securities in a portfolio of public and private companies (“Portfolio Companies”) for an aggregate purchase price of £223.9 million, approximately $277.5 million at the exchange rate on April 3, 2020. The option term was set to expire on May 1, 2020, but could be extended by the Company until May 15, 2020 upon demonstrating certain terms and conditions had been met. By mutual agreement of the parties, the Company further extended the option agreement from May 15, 2020 until May 22, 2020, at which time, the Company exercised its option to purchase the portfolio, pursuant to the terms of the option contract.

On June 4, 2020, the Company executed the Transaction Agreement between Link Fund Solutions Limited, Seller, and the Company. Pursuant to the Transaction Agreement, the Company will purchase from Seller and the Seller will transfer to the Company the specified equity securities of all Portfolio Companies at set prices at various future dates. The transfer dates will vary among the Portfolio Companies as the Transaction Agreement gives the Company the exclusive right to determine when to call for transfer of each security, and because each Portfolio Company (or its existing equity holders) may be required to approve the transfer due to rights of first refusals and other company-specific terms and conditions. Thus, the execution of the Transaction Agreement resulted in forward contracts for the Company to purchase equity securities in each public and private company at a specified price on a future date.

In accordance with the Transaction Agreement, the Company transferred the total purchase price of £223.9 million into an escrow account. As each of the equity securities in the Portfolio are transferred to the Company, the associated funds will be released from the escrow account to the Seller based on the consideration amount assigned to the equity securities in the Transaction Agreement.

For accounting purposes, the total purchase price of the portfolio was allocated to the individual equity securities based on their individual fair values as of April 3, 2020, in order to establish an appropriate cost basis for each of the acquired securities. The fair values of the public company securities were based on their quoted market price. The fair values of the private company securities were estimated based on recent financing transactions and secondary market transactions and factoring in a discount for the illiquidity of these securities.

Changes in the fair value of Acacia’s investment in the Portfolio Companies are recorded as unrealized gains or losses in the condensed consolidated statements of operations. For the three and six months ended June 30, 2020 and 2019, the accompanying condensed consolidated statements of operations reflected the following:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2020			2019		2020			2019
	(In thousands)
Change in fair value of trading security - LF Fund public securities	$	(1,069	)	$	–	$	(1,069	)	$	–
Change in fair value of equity securities derivative		6,891			–		6,891			–
Change in fair value of equity securities forward contract		74,662			–		74,662			–
Loss on sale of trading security - LF Fund public securities		(6,110	)		–		(6,110	)		–
Net realized and unrealized gain on investment in LF Fund securities	$	74,374		$	–	$	74,374		$	–