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Acquisition and Goodwill
 6 Months Ended
Jun. 30, 2014
Business Combinations [Abstract]  
Acquisition and Goodwill

10. Acquisition and Goodwill

On April 15, 2014, the Company completed the acquisition of Boost, a U.K. and Jersey based ETP sponsor, now known as WisdomTree Europe, as part of the Company’s strategy to expand internationally. Under the terms of the acquisition agreement, the Company owns 75% of WisdomTree Europe and the former Boost shareholders own 25%. The Company will acquire the remaining 25% ownership interest at the end of four years. No consideration was transferred on the acquisition date. The ultimate price that the Company will pay for Boost (including the remaining 25% interest) is determined by a predefined formula based on European assets under management (“AUM”) at the end of the four year period and will be tied to the Company’s enterprise value over global AUM at the time of payout, and affected by profitability of the European business. The ultimate payout will be made in cash over two years. Beginning in the second quarter of 2014 and each quarter thereafter for the next four years, the Company will incur a charge to reflect the fair value of this buyout liability.

The co-CEOs of Boost, who owned 88% of Boost prior to the acquisition, became employees of the Company upon closing of the transaction and are guaranteed a minimum buyout of $1,757 for their interest in Boost if they terminate their employment with the Company without good reason or they are terminated for cause by the Company. The Company determined that the minimum payments to be made to the co-CEOs of Boost represent consideration transferred and were recognized and measured at acquisition-date fair value to determine the amount of goodwill. The Company also determined that any future payments made to the co-CEOs of Boost in excess of the minimum payments is compensation for future service. These future payments will be accounted for separately from the business combination as compensation expense for post-acquisition services.

Because the Company is required to redeem the shares from the former Boost shareholders at the end of four years, under U.S. GAAP, the Company does not reflect the 25% interest held by the former Boost shareholders in WisdomTree Europe as non-controlling interest (“NCI”). Because the Company is obligated to mandatorily redeem the NCI for cash, the NCI (including the embedded forward contract) is recognized as a liability and initially measured at fair value on the acquisition date. Subsequent to the acquisition date, it will be measured at the amount of cash that would be paid under the conditions specified in the contract as if settlement occurred at the reporting date. Any change in the carrying amount of the liability will be recognized as interest expense. At the acquisition date, the fair value of the liability was also used to determine the amount of goodwill.

The Company recorded goodwill of $1,676 in connection with the acquisition of Boost. Goodwill represents the excess value of the purchase price over the $81 fair value of the net assets acquired, consisting primarily of accounts receivable, accounts payable and fixed assets. While the Company paid no consideration up front to the former Boost shareholders, under the terms of the acquisition agreement, $1,757 was deemed to represent the purchase price. Goodwill is not expected to be tax deductible.

The following table summarizes the goodwill activity for the six months ended June 30, 2014:

 

Balance at January 1, 2014

    $ —    

Goodwill acquired during the period

      1,676   
  

 

 

  

Balance at June 30, 2014

    $ 1,676   
  

 

 

  

Transaction costs of $753 and $1,607 were incurred during the three and six months ended June 30, 2014 in connection with this acquisition. Such expenses are recorded in professional and consulting fees, other and sales and business development.