72 | FINANCIAL STATEMENTS | Notes to the Consolidated Financial Statements
15. Acquisition of subsidiaries continued The Commutation consideration may be satisfied in two tranches, at F&C’s sole discretion, by:
•The allotment and issue at the relevant Commutation completion date to each Divisional Member of such number of F&C Shares as shall have a value equal to 50% of the consideration, or the payment to the Divisional Members of 50% of the consideration in cash at the relevant Commutation completion date; and
•The allotment and issue at the relevant Commutation completion date to a Nominee of such number of F&C Shares as shall have a value equal to 50% of the consideration (Deferred Commutation Shares), or in certain circumstances the payment of 50% of the consideration in cash on the date falling 24 months after the relevant Commutation completion date. Deferred Commutation Shares shall be released by the Nominee 24 months after the Commutation completion date, provided the Member continues to provide services to the respective LLP or has ceased to do so in certain “good leaver” circumstances.
At Completion, two Divisions entered into an initial 10% Commutation, resulting in TRC UK obtaining a further 10% of the related management fee profits in those Investment Teams. The aggregate consideration payable in respect of this initial Commutation of profits was satisfied by: a cash payment of £1.4m; the issue of 3,042,999 Ordinary Shares and the issue of 3,042,997 Deferred Commutation Shares. The aggregate fair value of the Ordinary Share capital and share premium arising on the issue of these Shares was £3.8m. The corresponding charge in respect of these has been recognised in the own share reserve, a separate component of retained earnings, in accordance with the treatment of new shares issued to satisfy share-based payment arrangements.
Under IFRS the share element of these Commutation arrangements requires to be accounted for as a share-based payment. Further details are given in note 26(g). The cash payment has been expensed and is included within the Commutation expenses outlined in note 6(a)(ii).
(b) 2011 – Acquisition of Thames River Capital Group (update) The fair value of consideration paid by the Group as disclosed in 2010 has been revised as follows:
(i) The additional cash consideration paid as a result of TRC net assets exceeding target net assets was £7.4m, compared to £7.5m as estimated in the 2010 Financial Statements. Accordingly, £0.1m has been released to the Income Statement.
(ii) The fair values of both the first and second instalments of conditional consideration have been assessed as zero, as the Run-rate EBITDA target at 31 December 2011 was not achieved and the 30 June 2012 target is not expected to be achieved. Therefore, the total conditional consideration of £7.5m has been released to the Income Statement.
In accordance with IFRS, the release of both elements of consideration have been shown as exceptional income (as disclosed in note 6(c)) in the Income Statement.
The fair values of assets and liabilities acquired at Completion have remained unchanged from those disclosed in 2010.
(c) Acquisition of F&C Group (Holdings) Limited Following the review of the Completion Accounts and subsequent fair value adjustments to the purchase consideration for the acquisition of F&C Group (Holdings) Limited on 11 October 2004, there is an estimated further consideration of £0.7m payable to Achmea B.V. (formerly Eureko B.V.) at 31 December 2011 (31 December 2010: £0.7m).
16. Deferred acquisition costs
2011 £m
At 1 January
Fair value of additions arising on acquisition of TRC Costs deferred in the year Amortisation in the year
At 31 December
8.8 –
1.1
(2.8) 7.1
2010 £m
9.0 0.2 2.4
(2.8) 8.8
31 December 31 December 2011 £m
2010 £m
Split as follows: Non-current assets Current assets
4.7 2.4
7.1
6.0 2.8
8.8
Deferred acquisition costs represent the commission paid to gain new asset inflows into open-ended funds. These costs are amortised over the expected terms of the contracts, in line with the initial fees received from investors, as disclosed in note 27.
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