ACQUISITION

12 Months Ended

Dec. 31, 2022

Business Combination and Asset Acquisition [Abstract]

ACQUISITION.

As discussed in Note 1, on December 29, 2021, T. Rowe Price Group, Inc. and certain wholly-owned subsidiaries completed the acquisition of Oak Hill Advisors, L.P., a leading alternative credit manager, and other entities that have common ownership (collectively, "OHA").

The upfront purchase consideration transferred included cash consideration of $2,487.4 million, and 4.4 million shares of common stock valued at $881.5 million. The upfront purchase consideration included the retirement of $217.1 million of OHA debt. An additional $8.5 million of cash was paid to the sellers in June 2022 following the finalization of the purchase consideration. The equity consideration transferred was restricted from sale for one year. In addition, contingent consideration in the amount of up to $900.0 million in cash may be due as part of an earnout payment starting in 2025 and ending in 2027, upon satisfying or exceeding certain defined revenue targets. These defined revenue targets are evaluated on a cumulative basis beginning at the end of 2024, with the ability to extend two additional years if the defined revenue targets are not achieved. The earnout amount is subject to a proportional reduction if OHA's actual revenue at the end of the earnout period does not meet the defined revenue targets and could result in no earnout payout if OHA's actual revenue falls below 75% of the defined revenue target. About 22% of the earnout is conditioned upon continued service with T. Rowe Price and was excluded from the purchase consideration transferred as further discussed in Compensation Arrangements below. The portion of the earnout which is not conditioned upon continued service with T. Rowe Price had a fair value of $95.8 million and $306.3 million at December 31, 2022 and 2021, respectively, and is recorded as a contingent consideration liability in our consolidated balance sheets.

The following table sets forth the preliminary and revised fair values of the assets acquired and liabilities assumed in connection with the acquisition:


(in millions)	Acquisition date fair value		Adjustments		Revised fair value
Cash and cash equivalents	$	22.1	$	—	$	22.1
Accounts receivable and accrued revenue	122.2		—		122.2
Investments	891.0		—		891.0
Property, equipment and software, net	22.4		—		22.4
Operating lease asset	101.5		—		101.5
Intangible assets	913.4		—		913.4
Goodwill	2,027.5		(50.4)		1,977.1
Other assets	27.2		—		27.2
Total assets	4,127.3		(50.4)		4,076.9

Accounts payable and accrued expenses	$	133.3	$	—	$	133.3
Operating lease liability	114.1		—		114.1
Deferred tax liabilities, included in other assets in the consolidated balance sheet	125.7		(9.6)		116.1
Contingent consideration liability	306.3		(49.3)		257.0
Total liabilities	679.4		(58.9)		620.5
Total identifiable net assets	$	3,447.9	$	8.5	$	3,456.4

The adjustments to the acquisition date fair values are a result of new information obtained about facts that existed as of the acquisition date.

As part of the acquisition, T. Rowe Price Group, Inc. incurred approximately $31.9 million of acquisition-related costs in 2021 that are included in general, administrative and other expenses in our 2021 consolidated statement of income. We incurred additional $.9 million of acquisition-related costs during 2022.

GOODWILL AND INTANGIBLE ASSETS

Goodwill is comprised of future benefits for T. Rowe Price from the OHA acquisition, which do not qualify as separately recognized intangible assets.

Approximately $1.2 billion of the goodwill generated by the acquisition is deductible in future periods for U.S. federal income tax purposes. The remaining goodwill is not deductible for tax purposes. The non-deductible goodwill is part of a tax basis difference associated with our investment in OHA, and, as permitted by accounting guidance, we have adopted an accounting policy to not record a related deferred tax liability.

The separately identified intangible assets at acquisition close included an indefinite-lived trade name of $134.7 million and both indefinite- and definite-lived investment advisory agreements totaling $778.7 million.

See Note 10 for more details on goodwill and the intangible assets.

INVESTMENTS

As part of the OHA acquisition, investments in affiliated private investment funds were recorded at fair value of $761.1 million as of the acquisition date. The difference of $375.0 million between the carrying value of these investments on OHA’s books and their fair value represented the basis difference, of which $306.5 million is being amortized on a straight-line basis over the funds’ estimated weighted average life of 5.9 years at acquisition. Since T. Rowe Price acquired the majority, but not 100% of the equity interest in these carried interest entities, non-controlling interests were recorded in permanent stockholders' equity at a fair value of $248.7 million as of the

acquisition date. The fair value of these non-controlling interests included a basis difference of $154.3 million, of which $129.1 million is attributable to funds with a definite life and is being amortized on a straight-line basis over the funds’ estimated weighted average life of 5.9 years at acquisition. The non-controlling interests are held by employees that participate in the management of the investments in affiliated private investment funds and therefore profit and loss allocations is reflected as compensation expense in the consolidated statements of income.

COMPENSATION ARRANGEMENTS

In connection with the OHA acquisition, a portion of the upfront purchase consideration and future payments to sellers or employees related to other compensation arrangements were conditioned upon continued service or a future performance period. These arrangements are treated as post-combination compensation expense recognized over a period of three to five years, and had an aggregate fair value of $459.9 million as of the acquisition closing date. These arrangements include an agreement among certain sellers whereby $283.2 million of their upfront purchase consideration would be forfeited and redistributed among the other sellers who are party to the agreement if employment with T. Rowe Price or an affiliate was voluntarily terminated prior to the fifth anniversary of the acquisition date. Additionally, these arrangements include about 22% of the total earnout with a fair value of $88.2 million as of December 31, 2021, and $58.3 million in retention bonuses that will be paid to certain employees of OHA following the completion of a service period. The aggregate fair value of $459.9 million also includes an agreement, referred to as the Value Creation Agreement, whereby certain employees of OHA will receive incentive payments in the aggregate equal to 10% of the appreciated value of the OHA business, subject to an annualized preferred return to T. Rowe Price, on the fifth anniversary of the acquisition date. The fair value of the earnout and Value Creation Agreement will be remeasured each reporting period and recognized over the related service periods. See Note 6 for more information on the Value Creation Agreement.

CASH FLOW INFORMATION

For the 2021 statement of cash flow, there were non-cash financing activities of $881.5 million for the issuance of T. Rowe Price Group, Inc. common stock as part of the purchase consideration and non-cash investing activities of $306.3 million related to the contingent consideration for the earnout.

PRO FORMA SUMMARY

The following unaudited pro forma summary presents combined results of operations of T. Rowe Price Group, Inc. as if the OHA acquisition had occurred on January 1, 2020. The pro forma adjustments include acquisition-related costs and adjustments to intangible amortization expense. These pro forma results are not indicative of results of operations that would have been achieved had the acquisition occurred on January 1, 2020, nor are they indicative of future results of operations of the combined entity.


	Pro forma years ended (unaudited)
(in millions)	12/31/2021		12/31/2020
Revenue	$	8,162	$	6,479
Net income	$	3,016	$	2,241