Notes to the financial statements

13. Acquisitions

(a) Subsidiaries – current year

Link

On 7 April 2008, the Group completed the acquisition of Link, a global equity derivatives broker for an initial consideration of £135m. Consideration of £21m has also been paid for their surplus net assets. Contingent deferred consideration based on the profit after tax for the year ending 31 March 2010 of Link plus certain complementary existing businesses of the Group will be paid in April 2009 and June 2010; currently this is estimated to be £26m, with a net present value at acquisition of £23m of which £14m was paid in April 2009. Total consideration is capped at £250m, excluding the amount paid for the surplus net assets. The fair value of the assets acquired is given below.

The fair value adjustments include the recognition of intangible assets arising on consolidation of £110m, the majority of which is in respect of customer relationships that are being amortised over ten years, a related deferred tax provision of £31m, and other provisions of £17m. The Group considers that the fair value of £91m for the goodwill is reasonable and relates to the value of the future growth potential of the business, its liquidity, and the assembled workforce. These assets are not separately identifiable.

In the period from acquisition to 31 March 2009, the Link business was integrated with certain complementary Group businesses. The combined Link businesses contributed £100m to revenue and £13m to profit before tax before amortisation of intangibles arising on consolidation and exceptional items, but after restructuring costs and the impact of the unwinding of discount on the contingent deferred consideration. It is impracticable to separately disclose the amounts relating solely to the business acquired, as the businesses have been successfully integrated. If the acquisition had been completed on the first day of the financial year, the results would not be materially different.

ICAP Equities and others

On 1 April 2008, the Group acquired 78% of ICAP Equities Limited (ICAP Equities) for a £1m initial consideration. The remaining 22% of the share capital consists of two classes of share capital – B shares represent 21% and include put/call option arrangements and C shares represent the remaining 1% which provide the holders with a right to offer the shares for sale to the Group. ICAP Equities is a newly incorporated UK company involved in the voice broking of pan-European cash equities.

Subsequent to the year end ICAP Equities will own 91.5% of ICAP Equities Asia Limited (ICAP Equities Asia), a Hong Kong company involved in a similar business for Asia Pacific cash equities. Of the remaining shares in ICAP Equities Asia, 7.5% will be B shares and 1% C shares. Both classes have similar rights to the equivalent shares in ICAP Equities.

A put/call option arrangement exists for the Group to acquire the minority interest in the B shares of both companies, the consideration for which is based on business performance. The options allow the minority to put up to one third of their equity annually from 2012 to the Group and for the Group to call the equity after 2012. The cost of the acquisition of ICAP Equities is capped at £220m and ICAP Equities Asia will be capped at 4.99% of the Group’s market capitalisation at the time of entering the agreement. In addition the C shareholders of both companies have the right to offer the shares for sale to the Group annually from 2012.

The expected acquisition of the minority interest in the B shares of both companies is treated as contingent deferred consideration and the Group has recognised a liability of £20m with a net present value at acquisition of £12m. A fair value adjustment to recognise intangible assets arising from development expenditure of £1m has been recognised on the acquisition of ICAP Equities, and £12m of goodwill has been recognised on the acquisition of both companies. The Group considers this to be a reasonable value and relates to the assembled workforce and future growth potential of the business. These assets are not separately identifiable.

In the period from acquisition to 31 March 2009, ICAP Equities and ICAP Equities Asia contributed £15m to revenue and a loss before tax before amortisation of intangibles arising on consolidation and exceptional items, but after the impact of the unwind of discount on contingent deferred consideration of £3m.

In December 2008, the Group acquired the remaining 50% stake in Skaarup Shipbrokers Inc (Skaarup) that it did not previously own by acquiring Bulk Ocean Chartering Inc, a shipbroking company based in the US, for £2m, and the remaining 50% it did not previously own of ICAP Shipping (Hong Kong) Limited (formerly ICAP Hyde (China) Limited), a shipbroking company based in China, for £0.2m. There were no fair value adjustments on these investments and goodwill of £2m has been recognised on the acquisition of Skaarup. Negative goodwill of £0.1m arising on the acquisition of ICAP Shipping (Hong Kong) Limited has been recognised immediately in the income statement. The Group now owns 75% of these companies through its investment in ICAP Shipping International Limited. In the period since acquisition, these companies contributed £0.8m in revenue and £0.3m in profit before tax before amortisation of intangibles arising on consolidation and exceptional items. If the acquisition had been completed on 1 April 2008, it is estimated the contribution would have been £2.2m to revenue and £0.8m in profit before tax before amortisation of intangibles arising on consolidation and exceptional items.

In August 2008, the Group acquired Escorfin SA (Escorfin), a Mexican broker of mutual funds, for £3m ($4m). There were no fair value adjustments required on this acquisition and goodwill of £3m has been recognised on the transaction. In the period since acquisition Escorfin has contributed £0.5m to revenue and £0.3m to profit before tax before amortisation of intangibles arising on consolidation and exceptional items. If the acquisition had been completed on 1 April 2008, it is estimated Escorfin would have contributed £0.6m to revenue and £0.3m to profit before tax before amortisation of intangibles arising on consolidation and exceptional items.

In July 2008, the Group acquired Moving Pictures Film and Television LLC (Moving Pictures), a US company involved in broking media content, for an initial payment of £0.3m ($0.4m) with contingent deferred consideration of up to £1m ($2m) payable within three years. The Group has the option to resell the company back to the original owners after three years at an amount equal to that originally paid. No fair value adjustments were required on the transaction and goodwill of £1m ($2m) has been recognised on the acquisition. In the period since acquisition Moving Pictures has contributed £0.4m to revenue and a loss before tax before amortisation of intangibles arising on consolidation and exceptional items of £0.1m. If the acquisition had been completed on 1 April 2008, it is estimated Moving Pictures would have contributed £0.4m to revenue and a loss before tax before amortisation of intangibles arising on consolidation and exceptional items of £0.1m.