Business Combination | 3. Business Combination Summary On November 13, 2017, the Company entered into a Share Sale Agreement as amended by the Waiver and Variation Agreement, dated April 11, 2018 (collectively referred to as the “Share Sale Agreement”) with ETFS Capital and WisdomTree International Holdings Ltd, an indirect wholly owned subsidiary of the Company (“WisdomTree International”), pursuant to which the Company agreed to acquire ETFS. On April 11, 2018, the Company completed the acquisition by purchasing the entire issued share capital of a subsidiary of ETFS Capital into which ETFS Capital transferred ETFS prior to completion of the ETFS Acquisition. Pursuant to the Share Sale Agreement, the Company acquired ETFS for a purchase price consisting of (a) $253,000 in cash (including $53,000 paid from proceeds arising from maturities of securities owned, at fair value), subject to customary adjustments for working capital, and (b) a fixed number of shares of the Company’s capital stock, consisting of (i) 15,250,000 shares of common stock (the “Common Shares”) and (ii) 14,750 shares of Series A Non-Voting On April 11, 2018 and in connection with the ETFS Acquisition, the Company and WisdomTree International entered into a credit agreement (the “Credit Agreement”), by and among the Company, WisdomTree International, certain subsidiaries of the Company as guarantors, the lenders party thereto and Credit Suisse AG, Cayman Islands Branch, as administrative agent, collateral agent, L/C Issuer and lender. Under the Credit Agreement, the lenders extended a $200,000 term loan (the “Term Loan”) to WisdomTree International, the net cash proceeds of which were used by WisdomTree International, together with other cash on hand, to complete the acquisition and pay certain related fees, costs and expenses, and made a $50,000 revolving credit facility (the “Revolver” and, together with the Term Loan, the “Credit Facility”) available to the Company and WisdomTree International for revolving borrowings from time to time for working capital, capital expenditures and general corporate purposes (See Note 12). On April 11, 2018 and in connection with the acquisition, the Company and ETFS Capital also entered into an Investor Rights Agreement, pursuant to which, among other things, ETFS Capital is subject to lock-up, Preliminary Purchase Price Allocation The ETFS Acquisition has been accounted for under the acquisition method of accounting in accordance with ASC Topic 805, Business Combinations, The following table summarizes the preliminary allocation of the purchase price as of the acquisition date: Purchase price Preferred Shares issued 14,750 Conversion ratio 1,000 Common stock equivalents 14,750,000 Common Shares issued 15,250,000 Total shares issued 30,000,000 WisdomTree stock price (1) $ 9.00 Equity portion of purchase price $ 270,000 Cash portion of purchase price Term Loan (See Note 12) 200,000 Cash on hand 53,000 Purchase price 523,000 Deferred consideration (See Note 11) 172,746 Total $ 695,746 Preliminary allocation of consideration Cash and cash equivalents 19,828 Receivables and other current assets 14,069 Intangible assets (2) 601,247 Other current liabilities (23,455 ) Fair value of net assets acquired 611,689 Preliminary goodwill resulting from the ETFS Acquisition (3) $ 84,057 (1) The closing price of the Company’s common stock on April 10, 2018, the last trading day prior to the closing date of the acquisition. (2) Represents purchase price allocated to customary advisory agreements. The fair value of the intangible assets was determined using an income approach (discounted cash flow analysis) which relied upon significant unobservable inputs including a revenue growth multiple of 3% to 4% and a weighted average cost of capital of 11.6%. These intangible assets were determined to have an indefinite useful life and are not deductible for tax purposes. A deferred tax liability associated with these intangible assets was not recognized as the intangibles arose in Jersey, where the Company will be subject to a zero percent tax rate. (3) Preliminary goodwill arising from the ETFS Acquisition represents the value of expected synergies created from combining the operations of ETFS and the Company. The goodwill is not deductible for tax purposes as the transaction was structured as a stock acquisition occurring in the United Kingdom. The Company has until August 31, 2018 to satisfy itself with the opening balance sheet delivered by ETFS Capital. Pursuant to Clause 4.2 of the Share Sale Agreement, if the Completion Working Capital Amount (as defined) is greater than the Target Working Capital Amount (as defined), then the Company will owe ETFS Capital the excess amount. At June 30, 2018, this excess is $7,033 which is recorded as a payable to ETFS Capital on the Company’s consolidated balance sheet. Any changes to the opening balance sheet may result in an adjustment to the amount owed to ETFS Capital, or alternatively, goodwill. All other elements of the purchase price allocation are finalized. Acquisition-Related Costs During the three and six months ended June 30, 2018, the Company incurred acquisition-related costs associated with the ETFS Acquisition of $7,928 and $9,990 respectively, which included professional advisor fees, severance and other compensation costs, a write-off Operating Results of ETFS The Company’s Consolidated Statements of Operations include the following operating results of ETFS since the acquisition date of April 11, 2018 through June 30, 2018: Revenues: $22,934 Income before taxes: $18,102 (including a gain on revaluation of deferred consideration of $9,898) Supplemental Unaudited Pro Forma Financial Information The following table presents unaudited pro forma financial information of the Company as if the ETFS Acquisition had been consummated on January 1, 2017. The information was derived from the historical financial results of the Company and ETFS for all periods presented and was adjusted to give effect to pro forma events that are directly attributable to the acquisition, factually supportable and expected to have a continuing impact on the combined results following the acquisition. Three Months Ended June 30, Six Months Ended June 30, 2018 2017 2018 2017 Revenues $ 78,025 $ 76,718 $ 157,796 $ 149,410 Net income $ 23,274 $ 15,554 $ 34,517 $ 17,451 Included within the proforma financial information above is a gain/(loss) on revaluation of deferred consideration of $8,326 and $319 for the three months ended June 30, 2018 and 2017, respectively, and $5,771 and ($8,039) for the six months ended June 30, 2018 and 2017, respectively. Significant adjustments to the unaudited pro forma financial information above include the recognition of interest expense associated with the Credit Facility for the periods presented, eliminating acquisition-related costs directly attributable to the acquisition and adjusting consolidated income tax expense based upon the Company’s anticipated normalized consolidated effective tax rate. The unaudited pro forma financial information above is not necessarily indicative of what the combined results of the Company would have been had the acquisition been completed as of January 1, 2017 and does not purport to project the future results of the combined company. In addition, the unaudited pro forma financial information does not reflect any future planned cost savings initiatives following the completion of the acquisition. |