Annual report pursuant to Section 13 and 15(d)

Acquisitions

Acquisitions

12 Months Ended

Dec. 31, 2017

SSN

On January 2, 2015, the Company acquired the capital stock of SSN and an affiliated company, Renaissance Capital Corporation ("RCC"). SSN is an independent registered investment advisor, broker-dealer, and insurance agency based in Knoxville, TN. RCC is a corporation that owns fixed assets leased to SSN. The purchase price was approximately $47,287, including $25,000 principal amount of secured short-term promissory notes, paid in full on the business day following the closing date, and $20,000 principal amount of secured four-year promissory notes, bearing interest at 1.74% per annum and payable in 16 equal quarterly installments of principal and interest (valued at $18,697 based on the imputed interest rate of 5.10%). The promissory notes are secured by a pledge of the shares of SSN and RCC purchased in the acquisition pursuant to a stock pledge agreement. The Company paid approximately $3,590 subsequent to the closing date, which is included in the purchase price above, based on the amount by which the aggregate net worth of SSN and RCC as of the closing date of the acquisition exceeded a targeted amount. Legal and other related acquisition costs of approximately $51 and $523 were incurred and charged to expenses in 2015 and 2014, respectively.

The Company conducted a valuation study to determine the acquisition-date fair value of assets acquired and liabilities assumed and related allocation of purchase price of SSN. The following table summarizes the fair value of assets acquired and liabilities assumed at the acquisition date:



Cash	$	8,081
Securities owned, at fair value	158
Receivables from clearing broker	630
Other receivables, net	11,711			⁽²⁾
Fixed assets, net	57
Notes receivable	225
Identifiable intangible assets	30,901
Goodwill	9,282			⁽¹⁾
Other assets	714
Total assets acquired	61,759
Commissions and fees payable	(12,562		)	⁽²⁾
Deferred income	(44		)
Accounts payable and accrued liabilities	(1,866		)	⁽¹⁾
Total liabilities assumed	(14,472		)
Total purchase price	$	47,287

(1) Increased by $484 from amounts originally reported.

(2) Increased by $9,100 from amounts originally reported.

The Company has elected under Section 338 of the Internal Revenue Code to treat the acquisition as an asset acquisition and, accordingly, goodwill will be deductible for income tax purposes over 15 years. Goodwill was assigned to the independent advisory and brokerage services segment.

Factors that contributed to a purchase price resulting in the recognition of goodwill includes SSN's strategic fit with the Company's existing businesses, including the resulting synergies and economies of scale expected from the acquisition.

Identifiable intangible assets as of the acquisition date consist of:



			Estimated Useful Life
			(years)
Relationships with financial advisors	$	26,654		20
Technology	2,080			12.5
Trade name	1,756			9
Non-compete agreements	411			3
Total identifiable intangible assets	$	30,901

Fair value amounts (Level 3 inputs) were determined using an income approach for relationships with financial advisors and non-compete agreements, the relief from royalty method for trade names and the cost approach for developed technology.

Other

In September 2016, Securities America Financial Corporation ("SAFC"), which is the parent of Securities America, purchased certain assets of Wall Street Financial Group, Inc. ("Wall Street"), which was deemed to be a business acquisition. Relationships with certain registered representatives and investment advisor representatives including their client accounts were acquired. The consideration for the transaction was $3,468, consisting of cash of $1,192 and contingent consideration having a fair value of $2,276, for which a liability was recognized based on the estimated acquisition-date fair value of the potential earn-out.

The liability was valued using a Monte Carlo simulation based option pricing model. The fair value measurement of the earn-out, which relates to the three-year period following closing, is based on unobservable inputs (Level 3) and reflects the Company’s own assumptions. The purchase price was allocated as follows: $3,070 to identifiable intangibles and $398 to goodwill.

In December 2016, SAFC purchased certain assets of Foothill Securities, Inc. ("Foothill"), which was deemed to be a business acquisition. Relationships with certain registered representatives and investment advisor representatives including their client accounts were acquired. The consideration for the transaction was $5,571, consisting of cash of $2,905 and contingent consideration having a fair value of $2,666, for which a liability was recognized based on the estimated acquisition-date fair value of the potential earn-out.

The liability was valued using a Monte Carlo simulation based option pricing model. The fair value measurement of the earn-out, which relates to the three-year period following closing, is based on unobservable inputs (Level 3) and reflects the Company’s own assumptions. The purchase price was allocated as follows: $4,640 to identifiable intangibles and $931 to goodwill.

In July 2015, Highland purchased certain assets of the insurance brokerage business of Select Brokerage Services Inc. ("Select"), which was deemed to be a business acquisition. The consideration for the transaction was $2,019, consisting of cash of $503 paid upon closing, a deferred payment of $504 due on the first anniversary of the closing date and contingent consideration having a fair value of $1,012 for which a liability was recognized based on estimated acquisition-date fair value of the potential earn-out.

The liability was valued using an income-based approach of the earn-out’s probability-weighted expected payout using three earn-out scenarios. The measurement of the earn-out, which relates to a four-year period, is based on unobservable inputs (Level 3) and reflects the Company’s own assumptions. The purchase price was allocated $2,019 to identifiable intangibles and other assets.

In June 2015, Securities America purchased certain assets of Dalton Strategic Investment Services, Inc. ("Dalton"), which was deemed to be a business acquisition. Relationships with certain registered representatives and investment advisor representatives including their client accounts were acquired.

The consideration for the transaction was $2,689, consisting of cash of $2,100 and contingent consideration having a fair value of $589, for which a liability was recognized based on the estimated acquisition-date fair value of the potential earn-out.

The liability was valued using an income-based approach discounting to present value the earn-out’s probability weighted expected payout using three earn-out scenarios. The fair value measurement of the earn-out which relates to a three-year period, is based on unobservable inputs (Level 3) and reflects the Company’s own assumptions. The purchase price was allocated as follows: $2,675 to identifiable intangibles and other assets and $14 to goodwill.

Results of operations relating to Wall Street, Foothill, Sunset, Select and Dalton, which are included in the accompanying consolidated statements of operations from their respective dates of acquisition, were not material. In addition, based on materiality, pro forma results were not presented.