Business Context and Reporting Period
Company: Institutional Financial Markets, Inc. (IFMI)
Filing Date: August 19, 2014 (Report Date: August 22, 2014)
Event: Entry into a Material Definitive Agreement (Item 1.01) to sell its European business operations.
On August 19, 2014, IFMI, LLC (a direct subsidiary of IFMI) entered into a Share Purchase Agreement to sell all outstanding shares of Cohen and Company Financial Limited (CCFL) and Cohen & Compagnie, SAS (C&C) to C&Co Europe Acquisition LLC, an entity wholly owned by Daniel G. Cohen, IFMI's Vice Chairman and President of the European Business.
Key Financial Metrics and Transaction Terms
The filing details the financial structure of the divestiture rather than reporting standard periodic financial results (revenue, profit, cash flow) for the company as a whole.
- Upfront Cash Consideration: $4,750,000 payable at closing, subject to adjustments.
- Revenue Share Obligation: Buyer obligated to pay 100% of revenue from the Sold Companies accruing after May 31, 2014, capped at $3,950,000.
- Revenue Share Schedule:
- Up to $2,250,000 in the second 12-month period following the Revenue Measure Date.
- Up to $1,000,000 in the third 12-month period.
- Up to $700,000 in the fourth 12-month period.
- Intercompany Payables: Buyer must settle intercompany accounts owed to the Seller prior to March 31, 2015.
- Security for Revenue Share: Cohen Bros. Financial LLC (an affiliate of the Buyer) pledged 4,983,557 units of IFMI, LLC interests as collateral. Daniel G. Cohen personally guaranteed payment obligations.
- Transaction Expenses: Each party bears its own expenses, unless the agreement is terminated for a superior proposal, in which case the Seller must reimburse Buyer expenses up to $200,000 and pay Cohen $3,000,000 plus a percentage of excess proceeds.
Material Changes and Transaction Conditions
Anticipated Closing: Fourth quarter of 2014 or first quarter of 2015.
Conditions Precedent:
- Receipt of "Change of Controller" approval from the U.K. Financial Conduct Authority.
- Expiration of the "go-shop" period (90 days from signing, or earlier at Special Committee discretion).
- Closing of the sale of the "Munda Business" (collateral management agreements) if an agreement is entered into prior to Closing.
Go-Shop Provision: The Seller retains the right to solicit superior proposals for 90 days. If a superior proposal is accepted, the Seller may terminate the agreement, subject to break-up fees and payments to Cohen.
Outlook, Risks, and Unusual Items
Management Commentary: The transaction involves the sale of the Company's European business to an executive. The Company anticipates the closing will occur in late 2014 or early 2015.
Post-Closing Arrangements:
- Transition Services: Seller will provide support services for $15,000/month.
- Munda Business Trust: If the Munda Business is not sold prior to closing, CCFL will hold it in trust for the Seller for a fee of $15,000/month, with revenue flowing to the Seller.
- Employment: Daniel G. Cohen will continue as Vice Chairman of the Board. His Restricted Stock Award restrictions will lapse immediately upon closing.
Risks and Contingencies:
- Failure to obtain regulatory approval (U.K. FCA).
- Failure to close the Munda Business sale if required.
- Buyer's failure to pay the Revenue Share (mitigated by personal guarantee and pledged units).
- General economic conditions and market liquidity risks.
Investor Verification Checklist
- Verify the status of the U.K. Financial Conduct Authority "Change of Controller" approval.
- Confirm the timeline for the sale of the Munda Business, as this is a condition for closing if an agreement is reached.
- Monitor the "go-shop" period expiration to determine if a superior proposal is sought.
- Review the valuation of the 4,983,557 pledged units held by Cohen Bros. Financial LLC as security for the $3.95M revenue share.
- Assess the impact of the divestiture on the Company's future revenue streams and fee income.