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Business Combinations, Goodwill and Other Intangible Assets
 9 Months Ended
Sep. 30, 2019
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]  
Business Combinations, Goodwill and Other Intangible Assets
5.
BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS
During 2019, we completed three new strategic acquisitions, expanding our capabilities and increasing our presence in key regional markets. These strategic acquisitions are presented below.
Acquired Company
Quarter of Acquisition
Country
Primary Service Line
Latitude Real Estate Investors (Latitude)
Q1
United States
LaSalle
Corporate Concierge Services (CCS)
Q1
United States
Property & Facilities Management
HFF, Inc. (HFF)
Q3
United States
Capital Markets
Acquisition of HFF
On July 1, 2019, we completed the acquisition of HFF, a public commercial real estate financial intermediary providing commercial real estate and capital markets services. The acquisition of HFF, regarded as one of the premier capital markets advisors in the industry, greatly enhances our existing capital markets services, significantly expands our client reach and aligns with our strategy to grow the capital markets business line. The existing HFF operations were predominantly within the U.S. along with one office in the UK. The following table details the total consideration transferred.
(in millions)
Amount
Cash consideration(1)
$
1,029.5

Share consideration(2)
809.2

JLL RSUs issued to replace unvested HFF RSUs(3)
32.0

Total consideration
$
1,870.7


(1) Exclusive of $262.8 million cash acquired.
(2) Represents the fair value of JLL common stock issued to then-HFF stockholders.
(3) Represents the allocation of expense to the pre-combination period; included within APIC.
The cash and share consideration transferred were used to purchase all outstanding shares of HFF Class A common stock. We financed the cash portion of the purchase price with cash on hand and borrowings under our existing $2.75 billion unsecured revolving credit facility (the "Facility"). For acquisition related costs refer to Note 12, Restructuring and Acquisition Charges. HFF is operating as a wholly-owned subsidiary of JLL and conducts business as JLL. Our Consolidated Statements of Comprehensive Income for both the three and nine months ended September 30, 2019, includes revenue of $184.5 million and operating income of $36.7 million related to the post-acquisition operations of HFF.
The following table presents the allocation of acquisition consideration to the tangible and intangible assets acquired and liabilities assumed of HFF based on their estimated fair values. The excess purchase price over the estimated fair value of net assets acquired was recorded to goodwill. The goodwill relating to this acquisition is primarily attributable to assembled workforce and synergies. We have not completed our analysis to assign fair values to all tangible and intangible assets and liabilities acquired and, therefore, the purchase price allocation is preliminary. We expect to complete the purchase price allocation in advance of, but not later than, one year from the acquisition date.
Description (in millions)
 
July 1, 2019
Total acquisition consideration
 
$
1,870.7

 
 
 
Assets
 
 
Cash and cash equivalents
 
$
262.8

Trade receivables, net
 
14.8

Warehouse receivables (face amount of $766.0)
 
794.1

Prepaid & other current assets
 
43.0

Property and equipment
 
18.9

Operating lease right-of-use assets
 
53.5

Identified intangibles
 
349.9

Other assets
 
38.4

Total assets
 
$
1,575.4

Liabilities
 
 
Accounts payable and accrued liabilities
 
$
33.9

Accrued compensation & benefits
 
55.8

Warehouse facilities
 
766.0

Other current liabilities (includes short-term operating lease liabilities)
 
64.4

Deferred tax liabilities, net
 
86.7

Long-term operating lease liabilities
 
42.6

Other liabilities
 
45.1

Total liabilities
 
$
1,094.5

Net assets
 
$
480.9

Goodwill
 
$
1,389.8


The following table provides unaudited pro forma results of operations assuming the acquisition of HFF occurred as of January 1, 2018.
 
Three Months Ended September 30,
 
Nine Months Ended
September 30,
(in millions)
2019
2018
 
2019
2018
Revenue
$
4,495.6

4,131.1

 
$
12,908.0

11,871.0

Net income attributable to common shareholders
167.2

140.8

 
305.1

277.9


These unaudited pro forma results of operations include adjustments for intangible amortization based on our current estimate of the fair value of identifiable intangibles acquired and their associated useful lives as well an adjustment to interest expense based on our estimate of interest that would have been incurred on the additional credit facility draw had these acquisitions occurred on January 1, 2018. A blended federal and state statutory tax rate of 27% has been assumed for the pro forma adjustments. These estimated adjustments, net of tax, were $38.3 million and $6.8 million, respectively, for the three and nine months ended September 30, 2019, and $(23.7) million and $(76.1) million, respectively, for the three and nine months ended September 30, 2018. The unaudited pro forma adjustments are subject to change within the measurement period because of the fair value assessments these adjustments are based on are not finalized. In addition, these unaudited pro forma results do not reflect the cost of integration activities or benefits that may result from potential synergies derived from the acquisition. Accordingly, these unaudited pro forma results of operations are not necessarily indicative of what results would have been had we acquired HFF on January 1, 2018, nor indicative of our future operating results.
The following is a summary of the preliminary estimate of the finite-lived intangible assets acquired in connection with the HFF acquisition.
Intangible Asset Class ($ in millions)
Weighted Average Amortization Period
Fair Value at Acquisition Date
Mortgage servicing rights (MSRs)
6.2 years
$
156.7

Other identified intangibles1
6.0 years
193.2

Total finite-lived intangibles acquired
 
$
349.9


1 Predominantly relates to customer relationships.
Other 2019 Business Combinations Activity
Aggregate terms of our acquisitions, other than HFF, included: (1) cash paid at closing of $28.3 million (net of $3.8 million in cash acquired), (2) guaranteed deferred consideration of $6.5 million, and (3) contingent earn-out consideration of $1.5 million, which we will pay upon satisfaction of certain performance conditions and which we have initially recorded at their respective acquisition date fair value.
A preliminary allocation of purchase consideration for these other acquisitions resulted in goodwill of $39.3 million, identifiable intangibles of $10.1 million, other net liabilities (assumed liabilities less acquired assets) of $4.7 million, and redeemable noncontrolling interest of $8.4 million. As of September 30, 2019, we have not completed our analysis to assign fair values to all of the identifiable intangible and tangible assets acquired and, therefore, we may further refine the purchase price allocations for our other 2019 acquisitions during their open measurement periods.
During the nine months ended September 30, 2019, we paid $59.9 million for deferred business acquisition and earn-out obligations for acquisitions completed in prior years.
2018 Business Combination Activity
During the nine months ended September 30, 2019, we made adjustments to our preliminary allocation of the purchase consideration for certain acquisitions completed during the second half of 2018. These adjustments resulted in a $1.0 million increase to goodwill, a $0.5 million increase to intangibles and a $1.5 million adjustment to other net liabilities. As of September 30, 2019, we have completed our analysis to assign fair values to all the identifiable intangible and tangible assets acquired for our 2018 acquisitions.
Earn-Out Payments
($ in millions)
September 30, 2019
 
December 31, 2018
Number of acquisitions with earn-out payments subject to the achievement of certain performance criteria
48

 
54

Maximum earn-out payments (undiscounted)
$
289.5

 
407.3

Short-term earn-out liabilities (fair value)1
74.1

 
50.9

Long-term earn-out liabilities (fair value)1
99.7

 
141.1

1 Included in Short-term and Long-term acquisition-related obligations on the Condensed Consolidated Balance Sheets
Assuming the achievement of the applicable performance criteria, we anticipate making these earn-out payments over the next six years. Refer to Note 8, Fair Value Measurements, and Note 12, Restructuring and Acquisition Charges, for additional discussion of our earn-out liabilities.
Goodwill and Other Intangible Assets
Goodwill and unamortized intangibles as of September 30, 2019 consisted of: (1) goodwill of $4,083.2 million, (2) identifiable intangibles of $625.6 million amortized over their remaining finite useful lives, and (3) $50.0 million of identifiable intangibles with indefinite useful lives that are not amortized. Notable portions of our goodwill and unamortized intangibles are denominated in currencies other than the U.S. dollar, which means a portion of the movements in the reported book value of these balances is attributable to movements in foreign currency exchange rates.
The following tables detail, by reporting segment, movements in goodwill.
 
Real Estate Services
 
 
 
(in millions)
Americas
EMEA
Asia Pacific
LaSalle
 
Consolidated
Balance as of December 31, 2018
$
1,452.0

906.8

316.8

22.2

 
$
2,697.8

Additions, net of adjustments
1,392.9

1.6

—

35.5

 
1,430.0

Dispositions
—

(0.9
)
—

—

 
(0.9
)
Impact of exchange rate movements
0.3

(37.6
)
(4.6
)
(1.8
)
 
(43.7
)
Balance as of September 30, 2019
$
2,845.2

869.9

312.2

55.9

 
$
4,083.2

 
Real Estate Services
 
 
 
(in millions)
Americas
EMEA
Asia Pacific
LaSalle
 
Consolidated
Balance as of December 31, 2017
$
1,412.2

957.6

323.0

16.5

 
$
2,709.3

Additions, net of adjustments
21.0

—

9.1

—

 
30.1

Impact of exchange rate movements
(0.5
)
(39.5
)
(9.2
)
(0.5
)
 
(49.7
)
Balance as of September 30, 2018
$
1,432.7

918.1

322.9

16.0

 
$
2,689.7


The following tables detail, by reporting segment, movements in the gross carrying amount and accumulated amortization of our identifiable intangibles.
 
MSRs
 
Other Intangibles
 
 
(in millions)
Americas
 
Americas
EMEA
Asia Pacific
LaSalle
 
Consolidated
Gross Carrying Amount
 
 
 
 
 
 
 
 
Balance as of December 31, 2018
$
266.2

 
90.0

83.1

23.5

43.9

 
$
506.7

Additions, net of adjustments (1)
208.3

 
194.5

—

—

10.3

 
413.1

Adjustment for fully amortized intangibles
(21.8
)
 
(0.7
)
(22.1
)
(2.0
)
—

 
(46.6
)
Impairments
—

 
(0.5
)
—

—

—

 
(0.5
)
Impact of exchange rate movements
—

 
—

(2.8
)
(0.8
)
(1.6
)
 
(5.2
)
Balance as of September 30, 2019
$
452.7

 
283.3

58.2

20.7

52.6

 
$
867.5

 
 
 
 
 
 
 
 
 
Accumulated Amortization
 
 
 

 

 

 

 
 

Balance as of December 31, 2018
$
(72.4
)
 
(38.8
)
(51.8
)
(6.8
)
—

 
$
(169.8
)
Amortization, net (2)
(41.6
)
 
(18.9
)
(7.5
)
(1.6
)
(2.0
)
 
(71.6
)
Adjustment for fully amortized intangibles
21.8

 
0.7

22.1

2.0

—

 
46.6

Impairments
—

 
0.5

—

—

—

 
0.5

Impact of exchange rate movements
—

 
—

2.2

0.2

—

 
2.4

Balance as of September 30, 2019
$
(92.2
)
 
(56.5
)
(35.0
)
(6.2
)
(2.0
)
 
$
(191.9
)
 


 
 
 
 
 
 
 
Net book value as of September 30, 2019
$
360.5

 
226.8

23.2

14.5

50.6

 
$
675.6

(1) Included in this amount for MSRs was $10.6 million relating to prepayments/write-offs due to prepayments of the underlying obligation for which we assumed, acquired or retained the servicing rights.
(2) Amortization of MSRs is included in Revenue before reimbursements within the Condensed Consolidated Statements of Comprehensive Income.
 
MSRs
 
Other Intangibles
 
 
(in millions)
Americas
 
Americas
EMEA
Asia Pacific
LaSalle
 
Consolidated
Gross Carrying Amount
 
 
 
 
 
 
 
 
Balance as of December 31, 2017
$
241.8

 
117.0

88.8

23.3

—

 
$
470.9

Additions, net of adjustments (1)
36.8

 
3.6

—

2.1

—

 
42.5

Adjustment for fully amortized intangibles
(17.2
)
 
(36.2
)
(1.7
)
(0.7
)
—

 
(55.8
)
Impact of exchange rate movements
—

 
0.3

(3.3
)
(2.0
)
—

 
(5.0
)
Balance as of September 30, 2018
$
261.4

 
84.7

83.8

22.7

—

 
$
452.6

 
 
 
 
 
 
 
 
 
Accumulated Amortization
 
 
 

 

 

 

 
 

Balance as of December 31, 2017
$
(55.1
)
 
(61.3
)
(43.1
)
(6.4
)
—

 
$
(165.9
)
Amortization, net (2)
(32.2
)
 
(10.2
)
(9.5
)
(1.9
)
—

 
(53.8
)
Adjustment for fully amortized intangibles
17.2

 
36.2

1.7

0.7

—

 
55.8

Impact of exchange rate movements
—

 
—

1.8

1.0

—

 
2.8

Balance as of September 30, 2018
$
(70.1
)
 
(35.3
)
(49.1
)
(6.6
)
—

 
$
(161.1
)
 
 
 
 
 
 
 
 
 
Net book value as of September 30, 2018
$
191.3

 
49.4

34.7

16.1

—

 
$
291.5

(1) Included in this amount for MSRs was $8.7 million relating to prepayments/write-offs due to prepayments of the underlying obligation for which we assumed, acquired or retained the servicing rights.
(2) Amortization of MSRs is included in Revenue before reimbursements within the Condensed Consolidated Statements of Comprehensive Income.
The remaining estimated future amortization expense of MSRs and other identifiable intangible assets, by year, as of September 30, 2019, is presented in the following table.
(in millions)
MSRs
Other Intangibles
 
Total
2019 (remaining 3 months)
$
17.6

16.6

 
$
34.2

2020
62.9

51.2

 
114.1

2021
58.2

44.2

 
102.4

2022
49.9

38.6

 
88.5

2023
42.6

36.1

 
78.7

2024
34.9

34.2

 
69.1

Thereafter
94.4

44.2

 
138.6

Total
$
360.5

265.1

 
$
625.6