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ITG Acquisition | 3 Months Ended
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Mar. 31, 2019
Business Combinations [Abstract] |
ITG Acquisition | ITG Acquisition Background On the ITG Closing Date, the Company completed the ITG Acquisition. In connection with the ITG Acquisition, Virtu Financial, VFH Parent LLC, a Delaware limited liability company and a subsidiary of Virtu Financial (“VFH”) and Impala Borrower LLC (the “Acquisition Borrower”), a subsidiary of the Company, entered into a Credit Agreement dated as of March 1, 2019 (the “Credit Agreement”), with the lenders party thereto, Jefferies Finance LLC, as administrative agent and Jefferies Finance LLC and RBC Capital Markets, as joint lead arrangers and joint bookrunners. The Credit Agreement provides (i) a senior secured first lien term loan in an aggregate principal amount of $1.5 billion, drawn in its entirety on the ITG Closing Date, with approximately $404.5 million being borrowed by VFH to repay all amounts outstanding under its existing term loan facility and the remaining approximately $1,095 million being borrowed by the Acquisition Borrower to finance the consideration and fees and expenses paid in connection with the ITG Acquisition, and (ii) a $50.0 million senior secured first lien revolving facility to VFH, with a $5.0 million letter of credit subfacility and a $5.0 million swingline subfacility. After the closing of the ITG Acquisition, VFH assumed the obligations of the Acquisition Borrower in respect of the acquisition term loans. Additionally, on the ITG Closing Date, the Company’s fourth amended and restated credit agreement (as amended on January 2, 2018 and September 19, 2018, the “Fourth Amended and Restated Credit Agreement”) with the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent, sole lead arranger and bookrunner, was terminated. Accounting treatment of the ITG Acquisition The ITG Acquisition has been accounted for as a business combination pursuant to ASC 805, Business Combinations by the Company using the acquisition method of accounting. Under the acquisition method, the assets and liabilities of ITG, as of the ITG Closing Date, were recorded at their respective fair values and added to the carrying value of the Company's existing assets and liabilities. The reported financial condition and results of operations of the Company for the periods following the ITG Closing Date reflect ITG's and the Company's balances and reflect the impact of purchase accounting adjustments. As the Company is the accounting acquirer, the financial results for the three months ended March 31, 2019 comprise the results of the Company for the entire applicable period and the results of ITG from the ITG Closing Date through March 31, 2019. All periods prior to the ITG Closing Date comprise solely the results of the Company. Certain former ITG management employees were terminated upon the ITG Acquisition, and as a result were paid an aggregate of $17.6 million pursuant to their existing employment contracts and arrangements. This amount has been recognized as an expense by the Company and is included in Employee compensation and payroll taxes in the condensed consolidated statements of comprehensive income for the three months ended March 31, 2019. Purchase price and goodwill The aggregate cash purchase price of $1.0 billion was determined as the sum of the fair value, at $30.30 per share, of ITG shares outstanding held by former ITG stockholders at closing and the fair value of certain ITG employee stock-based awards that were outstanding, and which vested at the ITG Closing Date. The purchase price has been allocated to the assets acquired and liabilities assumed using their estimated fair values at the ITG Closing Date. The Company has not yet completed its analysis to finalize the allocation of the purchase price to the ITG acquired assets and liabilities. The allocation of the purchase price may be modified over the measurement period, as more information is obtained about the fair values of assets acquired and liabilities assumed. The Company has engaged third party specialists for the purchase price allocation. The amounts in the table below represent the allocation of the purchase price and are subject to revision during the remainder of the measurement period, a period not to exceed twelve months from the ITG Closing Date. Adjustments to the provisional values during the measurement period will be recorded in the reporting period in which the adjustment amounts are determined. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the ITG Closing Date:
(in thousands) |
Cash and equivalents | $ | 197,072 |
Cash and securities segregated under federal regulations | 14,232 |
Securities borrowed | 13,182 |
Receivables from broker dealers and clearing organizations | 328,112 |
Financial instruments owned, at fair value | 523 |
Receivables from customers | 122,697 |
Property, equipment and capitalized software (net) | 46,408 |
Intangibles | 479,600 |
Deferred tax assets | 17,221 |
Operating lease right-of-use assets | 87,236 |
Other assets | 31,653 |
Total Assets | 1,337,936 |
Short-term borrowings | 18,651 |
Securities loaned | 17,663 |
Payables to broker dealers and clearing organizations | 152,043 |
Payables to customers | 116,419 |
Financial instruments sold, not yet purchased, at fair value | 11 |
Accounts payable and accrued expenses and other liabilities | 172,727 |
Operating lease liabilities | 104,983 |
Deferred tax liabilities | 65,888 |
Total Liabilities | 648,385 |
Total identified assets acquired, net of assumed liabilities | 689,551 |
Goodwill | 357,334 |
Total Purchase Price | $ | 1,046,885 |
Amounts preliminarily allocated to intangible assets, the amortization period and goodwill were as follows:
(in thousands) |  | Amount |  | Amortization Years
Technology |  | $ | 93,000 |  |  | 5
Customer relationships |  | 383,000 |  |  | 10
Trade names |  | 3,600 |  |  | 3
Intangible assets |  | 479,600 |  |  |
Goodwill |  | 357,330 |  |  |
Total |  | $ | 836,930 |  |  |
The total Goodwill of $357.3 million has been assigned to the Execution Services segment. Such goodwill is attributable to the expansion of product offerings and expected synergies of the combined workforce, products and technologies of the Company and ITG. Assumption of Equity Compensation Plan On the ITG Closing Date, the Company assumed the Amended and Restated ITG 2007 Equity Plan and certain stock option awards, restricted stock unit awards, deferred stock unit awards and performance stock unit awards granted under the Amended and Restated ITG 2007 Equity Plan (the “Assumed Awards”). The Assumed Awards are subject to the same terms and conditions that were applicable to them under the Amended and Restated ITG 2007 Equity Plan, except that (i) the Assumed Awards relate to shares of the Company’s Class A Common Stock, (ii) the number of shares of Class A Common Stock subject to the Assumed Awards was the result of an adjustment based upon an Exchange Ratio (as defined in the Agreement and Plan of Merger by and between the Company, Impala Merger Sub, Inc., a Delaware corporation and an indirect wholly owned subsidiary of the Company, and ITG, dated as of November 6, 2018, the “ITG Merger Agreement”) and (iii) the performance share unit awards were converted into service-based vesting restricted stock unit awards that were no longer subject to any performance-based vesting conditions. As of the ITG Closing Date, the aggregate number of shares of Class A Common Stock subject to such Assumed Awards was 2,497,028 and the aggregate number of shares of Class A Common Stock that remained issuable pursuant to the Amended and Restated ITG 2007 Equity Plan was 1,230,406. The Company filed with the Securities and Exchange Commission a Registration Statement on Form S-8 on the ITG Closing Date to register such shares of Class A Common Stock. Tax treatment of the ITG Acquisition The Company believes that the ITG Acquisition will be treated as a tax-free transaction as described in Section 351 of the Internal Revenue Code. ITG’s tax basis in its assets and liabilities therefore generally carried over to the Company following the ITG Acquisition. None of the goodwill is expected to be deductible for tax purposes. The Company recorded deferred tax assets of $17.2 million and deferred tax liabilities of $65.9 million with respect to recording ITG’s assets and liabilities under the purchase method of accounting as described above as well as recording the value of other tax attributes acquired as a result of the ITG Acquisition, as described in Note 14 “Income Taxes”. Pro forma results Included in the Company’s results for the three months ended March 31, 2019 are results from the business acquired as a result of the ITG Acquisition, from the ITG Closing Date through March 31, 2019 as follows:
(in thousands) |  |
Revenues |  | $ | 35,901 |
Income (loss) before income taxes |  | (48,407 | )
The financial information in the table below summarizes the combined pro forma results of operations of the Company and ITG, based on adding the pre-tax historical results of ITG and the Company, and adjusting primarily for amortization of intangibles created in the ITG Acquisition, debt raised in conjunction with the ITG Acquisition and nonrecurring costs associated with the ITG Acquisition, which comprise advisory and other professional fees incurred by the Company and ITG of $15.1 million and $18.2 million, respectively. The pro forma data assumes all of ITG’s issued and outstanding shares of common stock, par value $0.01 per share, were cancelled and extinguished and converted into the right to receive $30.30 in cash, without interest, less any applicable withholding taxes on January 1, 2018 and does not include adjustments to reflect the Company's operating costs or expected differences in the way funds generated by the Company are invested. This pro forma financial information is based on estimates and assumptions that have been made solely for purposes of developing such pro forma information, including, without limitation, preliminary purchase accounting adjustments. The pro forma financial information does not reflect any synergies or operating cost reductions that may be achieved from the combined operations. The pro forma financial information combines the historical results for the Company and ITG for the three months ended March 31, 2019 and 2018:
(in thousands, except per share amounts) |  | 2019 |  | 2018
Revenue |  | $ | 438,250 |  |  | $ | 946,556 |
Net income (loss) |  | (17,655 | ) |  | 368,993 |
Net income (loss) attributable to common stockholders |  | (6,033 | ) |  | 154,747 |

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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