Business Combinations, Goodwill and Other Intangible Assets

12 Months Ended

Dec. 31, 2019

BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS [Abstract]

Business Combinations, Goodwill and Other Intangible Assets

BUSINESS COMBINATIONS, GOODWILL AND OTHER INTANGIBLE ASSETS

During 2019, we completed four 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	Q1	United States	LaSalle
Corporate Concierge Services	Q1	United States	Property & Facilities Management
HFF, Inc.	Q3	United States	Capital Markets
Peloton Commercial Real Estate	Q4	United States	Leasing

Acquisition of HFF, Inc. ("HFF")

On July 1, 2019, we completed the acquisition of HFF, a public commercial real estate financial intermediary providing 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 and $5.8 million of restricted 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. The successor to HFF in the merger acquisition is operating as a wholly-owned subsidiary of JLL and conducts business as JLL. Our Consolidated Statements of Comprehensive Income for the year ended December 31, 2019, includes revenue of $392.3 million and operating income of $86.7 million related to the post-acquisition operations of HFF. Consistent with our presentation of segment operating income, this operating income figure excludes Restructuring and acquisition charges.

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 completed our analysis to assign fair values to all tangible and intangible assets and liabilities acquired and assumed except for tax-related accounts, however, we do not anticipate material changes to the amounts presented below. 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	33.5
Property and equipment	18.9
Operating lease right-of-use assets	65.3
Identified intangibles	349.9
Other assets	38.4
Total assets	$	1,577.7
Liabilities
Accounts payable and accrued liabilities	$	26.7
Accrued compensation & benefits	55.8
Warehouse facilities	766.0
Other current liabilities (includes short-term operating lease liabilities)	63.2
Deferred tax liabilities, net	92.3
Long-term operating lease liabilities	55.6
Other liabilities	45.1
Total liabilities	$	1,104.7
Net assets	$	473.0
Goodwill	$	1,397.7

The following table provides unaudited pro forma results of operations assuming the acquisition of HFF occurred as of January 1, 2018.

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 $39.6 million and $86.0 million, respectively, for the years ended December 31, 2019 and 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 Useful Life	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: (i) cash paid at closing of $40.4 million (net of $3.8 million in cash acquired), (ii) guaranteed deferred consideration of $17.0 million and (iii) contingent earn-out consideration of $5.0 million, payable upon satisfaction of certain performance conditions and which we have initially recorded at their respective acquisition date fair value.

A preliminary allocation of this purchase consideration for these other acquisitions resulted in goodwill of $62.8 million, identifiable intangibles of $12.7 million, other net liabilities (assumed liabilities less acquired assets) of $4.7 million, and redeemable noncontrolling interest of $8.4 million. As of December 31, 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 respective open measurement periods.

During the year ended December 31, 2019, we also paid $104.7 million for deferred business acquisition and earn-out obligations for acquisitions completed in prior years.

Of the $1,460.5 million of total additions to goodwill in 2019, we expected to amortize and deduct $25.4 million for tax purposes as of December 31, 2019, subject to statutory amortization periods.

2018 Business Combinations Activity

During the year ended December 31, 2018, we completed six new strategic acquisitions: four located in the Americas, one located in EMEA and one located in APAC.

Aggregate terms of these acquisitions included: (i) cash paid at closing of $101.3 million, (ii) guaranteed deferred consideration of $3.9 million and (iii) contingent earn-out consideration of $11.6 million recorded at their respective acquisition date fair value, which we will pay upon satisfaction of certain performance conditions.

As of December 31, 2018, a preliminary allocation of this purchase consideration resulted in goodwill of $60.8 million, identifiable intangibles of $57.1 million, and other net liabilities (assumed liabilities less acquired assets) of $1.1 million. As of December 31, 2019, the purchase price allocations for our 2018 acquisitions was final.

During the year ended December 31, 2019, we made adjustments to the preliminary allocation of the purchase consideration for certain acquisitions completed in 2018 during their respective open measurement periods. 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.

During the year ended December 31, 2018, we also paid $72.3 million for deferred business acquisition and earn-out obligations for acquisitions completed in prior years. In addition, we paid $1.5 million to acquire the final portion of the redeemable noncontrolling interest related to our 2014 acquisition of Tenzing AB, a Swedish real estate services provider.

Of the $60.8 million of total additions to goodwill in 2018, we expected to amortize and deduct $35.5 million for tax purposes as of December 31, 2018, subject to statutory amortization periods.

Earn-Out Payments



($ in millions)	December 31, 2019		December 31, 2018
Number of acquisitions with earn-out payments subject to the achievement of certain performance criteria	44		54
Maximum earn-out payments (undiscounted)	$	268.9	407.3
Short-term earn-out liabilities (fair value)¹	53.9		50.9
Long-term earn-out liabilities (fair value)¹	94.5		141.1

¹Included in Short-term and Long-term acquisition obligations on the 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 9, Fair Value Measurements, and Note 14, Restructuring and Acquisition Charges, for additional discussion of our earn-out liabilities.

Goodwill and Other Intangible Assets

Goodwill and unamortized intangibles as of December 31, 2019 consisted of: (i) goodwill of $4,168.2 million, (ii) identifiable intangibles of $632.6 million amortized over their remaining finite useful lives and (iii) $50.0 million of identifiable intangibles with indefinite useful lives that are not amortized. Significant 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 table details, by reporting segment, the annual movements in goodwill.



($ 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	42.0			1.9		8.7		6.4			59.0
Dispositions	—			—		(3.9	)	—			(3.9		)
Impact of exchange rate movements	(2.2		)	(52.7	)	(11.0	)	(0.7	)		(66.6		)
Balance as of December 31, 2018	1,452.0			906.8		316.8		22.2			2,697.8
Additions, net of adjustments	1,424.4			1.6		—		35.5			1,461.5
Dispositions	—			(4.4	)	—		—			(4.4		)
Impact of exchange rate movements	1.2			11.9		0.8		(0.6	)		13.3
Balance as of December 31, 2019	$	2,877.6		915.9		317.6		57.1			$	4,168.2

The following table details, by reporting segment, the annual movements in the gross carrying amount and accumulated amortization of our identifiable intangibles.



	MSR			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⁾	49.9			9.1		0.3		3.8		43.9		107.0
Adjustment for fully amortized intangibles	(25.5		)	(36.2	)	(1.7	)	(1.0	)	—		(64.4		)
Impact of exchange rate movements	—			0.1		(4.3	)	(2.6	)	—		(6.8		)
Balance as of December 31, 2018	266.2			90.0		83.1		23.5		43.9		506.7
Additions, net of adjustments ⁽¹⁾	247.6			196.7		0.1		—		9.6		454.0
Adjustment for fully amortized intangibles	(33.4		)	(0.6	)	(28.1	)	(2.0	)	—		(64.1		)
Impairments	—			(0.5	)	—		—		—		(0.5		)
Impact of exchange rate movements	—			0.1		0.8		(0.1	)	0.5		1.3
Balance as of December 31, 2019	$	480.4		285.7		55.9		21.4		54.0		$	897.4

Accumulated Amortization
Balance as of December 31, 2017	$	(55.1	)	(61.3	)	(43.1	)	(6.4	)	—		$	(165.9	)
Amortization expense, net ⁽²⁾	(42.8		)	(14.0	)	(12.8	)	(2.6	)	—		(72.2		)
Adjustment for fully amortized intangibles	25.5			36.2		1.7		1.0		—		64.4
Impact of exchange rate movements	—			0.3		2.4		1.2		—		3.9
Balance as of December 31, 2018	(72.4		)	(38.8	)	(51.8	)	(6.8	)	—		(169.8		)
Amortization expense, net ⁽²⁾	(65.0		)	(30.7	)	(9.5	)	(1.9	)	(2.7	)	(109.8		)
Adjustment for fully amortized intangibles	33.4			0.6		28.1		2.0		—		64.1
Impairments	—			0.5		—		—		—		0.5
Impact of exchange rate movements	—			0.1		0.1		—		—		0.2
Balance as of December 31, 2019	$	(104.0	)	(68.3	)	(33.1	)	(6.7	)	(2.7	)	$	(214.8	)

Net book value as of December 31, 2019	$	376.4		217.4		22.8		14.7		51.3		$	682.6

(1) Included in this amount for MSRs was $16.6 million and $11.4 million for 2019 and 2018, respectively, relating to write-offs due to prepayments of sold warehouse receivables for which we retained the servicing rights.

(2) Amortization of MSRs is included in Revenue within the Consolidated Statements of Comprehensive Income.

The remaining weighted average amortization period of MSRs and other finite-lived identifiable intangible assets is 4.4 years and 3.5 years, respectively, and the remaining estimated future amortization expense by year, as of December 31, 2019, is presented in the following table.



($ in millions)	MSRs		Other Intangibles	Total
2020	$	65.4	56.6	$	122.0
2021	61.2		48.6	109.8
2022	53.2		42.9	96.1
2023	46.1		40.5	86.6
2024	38.5		36.2	74.7
Thereafter	112.0		31.4	143.4
Total	$	376.4	256.2	$	632.6

Year ended December 31,

(in millions)

Net income attributable to common shareholders