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Acquisitions And Private Investment In IFMI | 12 Months Ended
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Dec. 31, 2013
Acquisitions And Private Investment In IFMI [Abstract] |
Acquisitions And Private Investment In IFMI | 4. ACQUISITION S AND PRIVATE INVESTMENT IN IFMI Acquisition of JVB Financial Holdings, L.L.C. On September 14, 2010, the Company entered into a Purchase and Contribution Agreement (the “Purchase Agreement”) with JVB Holdings, the sellers listed in the Purchase Agreement (the “Sellers”), and certain employees of JVB Holdings (the “Management Employees”). On January 13, 2011, the Company and the Operating LLC completed the acquisition of JVB Holdings. As contemplated by the Purchase Agreement, the Sellers sold all of the outstanding equity interests in JVB Holdings to the Operating LLC and JVB Holdings became a wholly owned subsidiary of the Operating LLC. The purchase price consisted of $5,646 in cash, 313,051 shares of IFMI Common Stock plus a cash amount equal to JVB Holdings’ tangible net worth. In addition, the Company agreed to pay $2,482 to the Management Employees in three equal installments, one on each of the first three anniversaries of the closing date of the acquisition, contingent upon each individual’s continued employment at each payment date. Upon the closing of the acquisition, an escrow of $484 was established for the payment of any adjustments to the purchase price based on the final tangible net worth of JVB Holdings as of the closing of the transaction and particular indemnities, and $384 was withheld for payment to the Sellers only if a specific revenue target was achieved at the end of the first year of operation following the closing of the tr ansaction. All of the restricted membership units in the Operating LLC were delivered to the Management Employees and vest ed in three equal installments on each of the first three anniversaries of the closing date, subject to the terms and conditions contained in each employee’s employment agreement. Once vested, the holder s of the restricted membership units in the Operating LLC require d that the Operating LLC redeem such restricted membership units for cash or, at the Company’s option, shares of the Common Stock of the Company. See notes 19 and 20. The above transaction was accounted for under the acquisition method in accordance with U.S. GAAP. Accordingly, the transaction was accounted for as an acquisition by the Operating LLC of JVB Holdings. The effective date of the transaction with JVB Holdings for accounting purposes was January 1, 2011. JVB Holdings’ results of operations were included in the Company’s statements of operations beginning January 1, 2011. The following table summarizes the calculation of the fair value of consideration transferred by the Company to acquire JVB Holdings (dollars in thousands except share and per share data):
Equity consideration: |  |
Shares of IFMI issued (1)............................................................................................................................................................................... | 313,051 |
Multiplied by (2)............................................................................................................................................................................................. | $ 4.89 |
Value of stock consideration............................................................................................................................................................................. | $ 1,531 | $ 1,531
Cash consideration (3)..................................................................................................................................................................................... |  | 14,956
Contingent payments due (4)............................................................................................................................................................................. |  | 326
Total purchase price....................................................................................................................................................................................... |  | $ 16,813
(1)Excluded 559,020 units of the Operating LLC issued to certain JVB Holdings Sellers that remained employees of JVB Holdings. These units vest over a three year period and are treated as compensation for future service and not part of the purchase price. See notes 19 and 20. (2)Represented the closing price of IFMI shares of Common Stock on January 13, 2011. (3)When closing the transaction, payment was made based on an estimate of JVB Holdings’ tangible net worth. However, a mechanism existed in the contract whereby the Company would owe additional funds or could recapture funds to the extent JVB Holdings’ tangible net worth differed from the amount estimated. The amount of cash consideration represented actual cash paid at closing of $15,044 less $88 receivable from escrowed proceeds for the tangible net worth adjustment. Also, cash consideration excluded $2,482 which was paid over time to the Management Employees. The amount was contingent upon the individuals remaining employees. It was earned ratably over a three-year period. If the employee terminated employment during the three year period, any unearned portion was refundable to the Company. It was treated as compensation for future services and not part of the purchase price. (4)Represents contingent payments due to the Sellers based on performance targets. A specific business unit of JVB Holdings was required to earn a minimum amount of revenue within 12 months of the business combination in order for this amount to be due to the owners of JVB Holdings. If that threshold was met, the owners of JVB Holdings would receive an additional payment of $384 which the Company would have treated as contingent consideration. Accordingly, the Company determined the fair value of this arrangement and recorded a liability equal to the fair value as of the date of the business combination. The Company had determined that the fair value of this obligation at the business combination date was $326. The Company carried this liability at fair value and any future adjustments in fair value were recognized in earnings. The Company recognized income of $326 for the year ended December 31, 2011, which was included in principal transactions and other income in the Company’s consolidated income statement. The following table summarizes the amounts of identified assets acquired and liabilities assumed at the acquisition date as of January 1, 2011 (dollars in thousands):
| Total Estimated Fair Value as of Acquisition Date
Assets acquired: |
Cash and cash equivalents............................................................................................................................................................................... | $ 91
Receivables from brokers, dealers and clearing agencies (deposits with clearing organizations)..................................................................................... | 100
Investments-trading......................................................................................................................................................................................... | 31,935
Other assets (1) (2)......................................................................................................................................................................................... | 1,077
Liabilities assumed: |
Payables to brokers, dealers and clearing agencies............................................................................................................................................... | (17,655)
Accounts payable and other liabilities................................................................................................................................................................. | (1,221)
Trading securities sold, not yet purchased........................................................................................................................................................... | (4,497)
Fair value of net assets acquired....................................................................................................................................................................... | 9,830
Purchase price for net assets acquired............................................................................................................................................................... | $ 16,813
Goodwill (2) (3)............................................................................................................................................................................................. | $ 6,983
(1)Other assets are comprised of a purchase accounting adjustment of $166, which represents the estimated value of the broker-dealer license. The intangible asset of $166 related to the brok er-dealer license was allocated to the Capital Markets business segment. (2)During the measurement period, which ended on January 13, 2012, an adjustment of $30 reducing the fair value of the assets acquired was made with a corresponding adjustment to increase goodwill by $30. (3)Goodwill recognized as of the acquisition date was allocated to the Capital Markets business segment. The allocation of the purchase price to the consolidated assets and liabilities of JVB Holdings resulted in goodwill of $6,983 (which is the difference between the fair value of JVB Holdings’ net assets and the purchase price paid by the Company). The goodwill was allocated to the Capital Markets business segment. Acquisition of PrinceRidge On April 19, 2011, the Operating LLC acquired PrinceRidge. Pursuant to the agreement of the parties, the transaction was effective May 31, 2011. The Operating LLC contributed $45,000, which was comprised of cash, amounts payable, and all of the equity ownership interests in CCCM, a broker-dealer comprising a substantial part of the Operating LLC’s Capital Markets business segment, to PrinceRidge in exchange for an approximate 70% interest (consisting of equity and profit interests) in PrinceRidge. The transaction was subject to final FINRA approval, which was received on October 19, 2011. Upon the closing of the transactions, the limited liability company agreement of PrinceRidge GP and the limited partnership agreement of CCPRH were amended and restated and IFMI, LLC was admitted as a member of PrinceRidge GP and a limited partner in CCPRH. Except as otherwise provided by the limited liability company agreement of PrinceRidge GP, the business and affairs of PrinceRidge GP are managed under the direction of the Board of Managers of PrinceRidge GP. Following the closing of the transactions contemplated by the Contribution Agreement, PrinceRidge GP’s Board of Managers was comprised of five members: three IFMI, LLC designees and two designees by the individuals that were members of PrinceRidge GP prior to the transaction. The transaction was accounted for as an acquisition by the Operating LLC of PrinceRidge. The effective date of the acquisition transaction with PrinceRidge for accounting purposes was May 31, 2011. The results of operations of PrinceRidge are included in the Company’s statements of operations beginning June 1, 2011. PrinceRidge (including the operations of CCCM since its contribution on June 1, 2011) contributed $27,191, $43,925, and $27,406 of revenue and $(2,750), $(386) and $(5,003) of net income (loss) attributable to the Company for the years ended December 31, 2013, 2012, and 2011, respectively. The following table summarizes the amounts of identified assets acquired and liabilities assumed at the acquisition date of May 31, 2011. In accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations, the Company had one year from the closing of the transaction, referred to as the measurement period, to finalize the accounting for business combinations. The measurement period for the PrinceRidge acquisition expired on May 31, 2012. During the second quarter of 2012, the Company made a measurement period adjustment to the redeemable non-controlling interest with a corresponding adjustment to goodwill related to the acquisition of PrinceRidge. The measurement period adjustment was related to the change in the effective ownership percentage between IFMI and the non-controlling interest. The adjustment reduced goodwill and the redeemable non-controlling interest by $93.
| Total Estimated Fair Value as of Acquisition Date (final)
| (dollars in thousands)
Assets acquired: |
Cash and cash equivalents............................................................................................................................................................................... | $ 2,149
Receivables from brokers, dealers and clearing agencies……………………………………………... | 9,382
Other receivables........................................................................................................................................................................................... | 1,815
Investments-trading......................................................................................................................................................................................... | 42,407
Receivables under resale agreements................................................................................................................................................................... | 158,688
Other assets................................................................................................................................................................................................... | 4,730
Liabilities assumed: |
Accrued compensation..................................................................................................................................................................................... | (1,725)
Accounts payable and other liabilities................................................................................................................................................................. | (2,877)
Trading securities sold, not yet purchased........................................................................................................................................................... | (38,605)
Securities sold under agreement to repurchase..................................................................................................................................................... | (158,620)
Fair value of existing PrinceRidge net assets....................................................................................................................................................... | 17,344
Purchase price (1) (3)..................................................................................................................................................................................... | $ 18,409
Excess of purchase price over net fair value....................................................................................................................................................... | 1,065
Less amount allocated to intangible asset (2)....................................................................................................................................................... | (166)
Goodwill (3)................................................................................................................................................................................................... | $ 899
(1)The purchase price represents the fair value of PrinceRidge retained by the members of PrinceRidge other than the Operating LLC (dollars in thousands):
| Total Estimated Fair Value as of Acquisition Date (final)
Summary Purchase Accounting |
Net Fair Value Summary |
Net Fair Value of IFMI Contribution................................................................................................................................................................... | $ 45,000
Net Fair Value of PrinceRidge immediately prior to IFMI Contribution..................................................................................................................... | 17,344
Net Fair Value of PrinceRidge After IFMI Contribution......................................................................................................................................... | 62,344
Effective Ownership Percentage (as negotiated) |
IFMI............................................................................................................................................................................................................... | 70.5%
Non-Controlling Interest................................................................................................................................................................................... | 29.5%
Total............................................................................................................................................................................................................... | 100.0%
Allocable Net Fair Value of PrinceRidge After IFMI Contribution |
IFMI............................................................................................................................................................................................................... | 43,935
Non-Controlling Interest (purchase price)........................................................................................................................................................... | 18,409
Total............................................................................................................................................................................................................... | $ 62,344
See note 18 for a description of the redeemable non-controlling interest. The excess of the purchase price over the net fair value of PrinceRidge immediately prior to the IFMI contribution equals $1,065 calculated as the purchase price of $18,409 minus the fair value of PrinceRidge prior to IFMI’s contribution of $17,344. The excess of $1,065 can also be calculated as IFMI’s contribution of $45,000 minus IFMI’s allocable fair value of PrinceRidge subsequent to IFMI’s contribution of $43,935. (2)The intangible asset of $166 represented the estimated value of the broker-dealer license, which was allocated to the Capital Markets business segment. (3)Goodwill recognized as of the acquisition date was allocated to the Capital Markets business segment. See note 12. The allocation of the purchase price to the consolidated assets and liabilities of PrinceRidge results in goodwill of $899. The goodwill is not deductible for tax purposes. In October 2012, the Board of Managers of PrinceRidge GP was reduced to three members, all of whom are designated by the Operating LLC. During 2013, PrinceRidge repurchased the remaining outstanding remaining units of PrinceRidge that were not held by the Operating LLC. Accordingly, as of December 31, 2013, PrinceRidge wa s 100% owned by the Operating LLC. See notes 17 and 18. Acquisition of Star Asia Manager Effective March 1, 2013, Star Asia Manager repurchased (the “Star Asia Manager Repurchase Transaction”) its outstanding equity units held by Star Asia Mercury LLC (formerly, Mercury Partners, LLC) (“Mercury”). Star Asia Manager repurchased the units from Mercury for $425 and a note payable of $725. Under the note payable, interest accrued at a variable rate and there was no stated maturity date. See note 1 7. Prior to the Star Asia Manager Repurchase Transaction, each of the Company and Mercury owned 50% of the voting interests in Star Asia Manager. The Company accounted for its investment under the equity method of accounting. As a result of the Star Asia Manager Repurchase Transaction, the Company obtained 100% voting control of Star Asia Manager. Because the transaction resulted in the Company obtaining control, the Company accounted for the transaction as a business combination as called for under Accounting Standards Codification (“ASC”) 805, Business Combinations. Subsequent to the Star Asia Manager Repurchase Transaction, the Company included Star Asia Manager in its consolidated financial statements. Under ASC 805, if the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the acquirer shall report provisional amounts. For a period of up to one year subsequent to the acquisition date (the measurement period), the Company can adjust the provisional amounts as it obtains new information regarding the facts and circumstances that existed at the acquisition date. The following table summarizes the provisional amounts of the identified assets acquired and liabilities assumed at the acquisition date as of March 1, 2013 (dollars in thousands):
| Total Estimated Fair Value as of Acquisition Date
Assets acquired: |  |
Cash and cash equivalents | $ | 1,104
Due from related parties |  | 253
Other assets |  | 150
Liabilities assumed: |  |
Accounts payable and other liabilities |  | (55)
Fair value of net assets acquired |  | 1,452
Purchase price (1) |  | 1,855
Intangible Asset (2) | $ | 403
As provisional amounts, the amounts in the table above are subject to changes during the measurement period. See notes 15 and 28. (1)The purchase price represents the cash paid to Mercury of $425; the note payable to Mercury of $725; and the Company’s equity method investment immediately prior to the Star Asia Manager Repurchase Transaction. For purposes of the provisional amounts, the Company has assumed the carrying value of the Company’s equity method investment immediately prior to the Star Asia Manager Repurchase Transaction approximated fair value. As with all provisional purchase accounting amounts, this is subject to adjustment during the measurement period. (2)For purposes of the provisional purchase accounting, the Company determined that the excess of the purchase price over the net fair value of tangible assets acquired should entirely be allocated to an intangible asset representing the value of Star Asia Manager’s investment management contract with Star Asia. The Company treated the estimated value as an intangible asset with a finite life. The Company will amortize the intangible asset using the straight-line method over the estimated economic life of the asset of 1.3 years. The intangible asset was allocated to the Asset Management business segment. See note 27. As with all provisional purchase accounting amounts, this is subject to adjustment during the measurement period. For the year ended December 31, 2013, Star Asia Manager (since its acquisition on March 1, 2013) has contributed $2,297 in revenue and $968 in net income to the Company. On a pro forma basis, assuming the acquisition had occurred on January 1, 2012, the Company’s revenue would have been $58,097 and $99,072 and its net income / (loss) attributable to IFMI would have been $(13,293) and $(449) for the years ended December 31, 2013 and 2012, respectively. On February 20, 2014, the Company announced the completion of the sale of the Company’s ownership interests in the Star Asia Group including Star Asia Manager. See note 31. Investments by Mead Park Capital Partners LLC (“Mead Park Capital”) and EBC 2013 Family Trust (“EBC”) On May 9, 2013, the Company entered into definitive agreements (the “definitive agreements” with Mead Park Capital and CBF (an entity owned solely by Daniel G. Cohen, the Vice Chairman of the Company’s Board of Directors and of the board of managers of the Operating LLC, President and Chief Executive of the Company’s European Business, and President of CCFL), pursuant to which each committed to make investments in the Company, totaling $13,746 in the aggregate. Mead Park Capital is a vehicle advised by Mead Park Advisors LLC (“Mead Park”) (a registered investment advisor) and is controlled by Jack J. DiMaio, Jr., Chief Executive Officer and founder of Mead Park and Chairman of the Company’s Board of Directors. The investment and related actions were unanimously approved by the Company’s Board of Directors (with Daniel G. Cohen abstaining) following the recommendation of the Board’s Special Committee of the Board of Directors, which was formed in connection with the transaction and was comprised of three of the Company’s independent directors. The Company obtained stock holder approval of the share issuances contemplated by the definitive agreements at the Company’s 2013 Annual Meeting of Stockholders on September 24, 2013. In connection with the closing of the transactions contemplated by the definitive agreements, on September 25, 2013, Mead Park Capital purchased 1,949,167 shares of the Company’s Common Stock and EBC, as assignee of CBF, purchased 800,000 shares of the Company’s Common Stock, in each case, at $2.00 per share for a combined investment of $5,498. Mead Park Capital also purchased convertible senior promissory notes in the aggregate principal amount of $5,848, which are convertible in accordance with the terms of the note into 1,949,167 shares at $3.00 per share. In addition, EBC, as assignee of CBF, purchased a convertible senior promissory note in the aggregate principal amount of $2,400, which is convertible in accordance with its terms into 800,000 shares at $3.00 per share. Daniel G. Cohen is a trustee of EBC. The convertible notes issued under the definitive agreements and described above (the “8.0% Convertible Notes”) have an 8.0% annual interest rate and will mature on September 25, 2018. See note 1 7 for a discussion about the 8.0% Convertible Notes. In connection with the transactions contemplated by the definitive agreements, on May 9, 2013, the Company’s Board of Directors adopted a Section 382 Rights Agreement (the “Rights Agreement”) in an effort to protect stockholder value by attempting to protect against a possible limitation on the Company’s ability to use its net operating loss and net capital loss carry forwards (the “deferred tax assets”) to reduce potential future federal income tax obligations. See note 19. In connection with the September 25, 2013 closing of the transactions contemplated by the definitive agreements, Mr. DiMaio and Christopher Ricciardi, a partner in Mead Park and the former President of the Company, were elected to the Company’s Board of Directors. Mr. DiMaio was also named Chairman of the Company’s Board of Directors and Mr. Cohen was named Vice Chairman of the Company’s Board of Directors. In addition, the Company’s Board of Directors was reduced from ten to eight members. In June 2013, the Company appointed Lester R. Brafman as President of the Company. In September 2013, the Company appointed Mr. Brafman as the Chief Executive Officer of the Company. In September 2013, Mr. Cohen transitioned his role as Chief Executive Officer and Chief Investment Officer of the Company, to serve as President and Chief Executive Officer of the Company’s European Business and President of CCFL.

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