NOTE 4. ACQUISITIONS

USAA AMCO Acquisition

On and effective July 1, 2019, the Company completed the acquisition (the “USAA AMCO Acquisition”) of the USAA Acquired Companies, which includes USAA’s Mutual Fund and ETF businesses and its 529 College Savings Plan, as amended by Amendment No. 1 (the “Amendment”) to the stock purchase agreement (the “Stock Purchase Agreement”). The Amendment amended the Stock Purchase Agreement entered into on November 6, 2018 between the Company, USAA Investment Corporation, and for certain limited purposes, USAA Capital Corporation. The assets acquired and liabilities assumed and the results of the USAA Acquired Companies’ operations are not reflected in the accompanying financial statements as of and for the three and six months ended June 30, 2019 as the closing date of the acquisition and effective control of the USAA Acquired Companies was consummated on July 1, 2019.

The USAA AMCO Acquisition expands and diversifies our investment platform, particularly in the fixed income and solutions asset classes, and increases our size and scale. Additional products added to our investments platform include target date and target risk strategies, managed volatility mutual funds, active fixed income ETFs, sub-advised and multi-manager equity funds. We have also added to our lineup of asset allocation portfolios and smart beta equity ETFs. Through the acquisition, the Company has the rights to offer products and services using the USAA brand and provides an opportunity for Victory to offer its products to USAA members through a direct member-channel.

Purchase Price

The Company purchased 100% of the outstanding common stock of USAA Acquired Companies for a purchase price of approximately $850.0 million paid in cash at closing, subject to transaction related payments and certain post-closing adjustments. Total purchase consideration includes approximately $850.0 million paid at closing and a maximum of $150.0 million ($37.5 million per year) in contingent payments based on the annual revenue of USAA Adviser attributable to all “non-managed money”-related AUM in each of the first four years following the closing.

Given the timing of the closing of the USAA AMCO Acquisition and the complexity of the purchase accounting, the information necessary for the initial accounting for the preliminary purchase price allocation and pro forma financial results is not yet available. This information will be available in connection with the third quarter reporting. We intend to finalize the accounting for these items as soon as reasonably possible and may adjust the preliminary purchase price allocation, as necessary, during the measurement period of up to one year after the closing date as we obtain more information as to facts and circumstances existing as of the acquisition date.

Entry into New Credit Agreement

The purchase price paid in cash at closing was financed using a combination of a new credit agreement (the “2019 Credit Agreement”) and the Company’s balance sheet resources. The 2019 Credit Agreement, dated as of July 1, 2019, was entered into among Victory, as borrower, the lenders from time to time party thereto and Barclays Bank PLC, as administrative agent and collateral agent, pursuant to which we obtained a seven-year term loan in an aggregate principal amount of $1.1 billion and established a five-year revolving credit facility (which was unfunded as of the closing date) with aggregate commitments of $100.0 million (with a $10.0 million sub-limit for the issuance of letters of credit). Amounts outstanding under the 2019 Credit Agreement bear interest at an annual rate equal to, at the option of the Company, either London Interbank Offered Rate (“LIBOR”) (adjusted for reserves) plus a margin of 3.25% or an alternate base rate plus a margin of 2.25%.

Per the terms of the Amendment, the Company placed $71.9 million of balance sheet cash in an escrow account on June 28, 2019 to be released upon closing of the USAA AMCO Acquisition on July 1, 2019, as partial payment of closing purchase price and costs related to the transaction and the 2019 Credit Agreement. Due to the limitations on the use of the escrowed funds, the $71.9 million was recorded in “Restricted cash” in the accompanying unaudited Condensed Consolidated Balance Sheets.

Termination of Previous Credit Agreeement

In connection with our entry into the 2019 Credit Agreement, we repaid all indebtedness outstanding under the previous credit agreement (the “2018 Credit Agreement”) dated as of February 12, 2018. The 2018 Credit Agreement and the credit documents entered in connection therewith were terminated on the closing date.  

Termination of Harvest Purchase Agreement

On and effective April 22, 2019, the Company, Harvest Volatility Management, LLC (“Harvest”) and the members of Harvest entered into an agreement (the “Harvest Termination Agreement”) to mutually terminate the purchase agreement (the “Harvest Purchase Agreement”) entered into on September 21, 2018, which included the acquisition (the “Harvest Acquisition”).  Neither the Company nor Harvest is responsible for any termination fee to the other party as a result of the termination.

CEMP Acquisition

Under the terms of the Compass Efficient Model Portfolios, LLC acquisition (the “CEMP Acquisition”), we pay cash related to base payments and contingent earnouts annually following each of the first four anniversaries of the CEMP Acquisition. During the three and six months ended June 30, 2019, we paid no cash consideration, however, on July 11, 2019, the Company paid the fourth and final payment of $6.0 million in cash to the sellers.

Acquisition-related costs   

The Company incurred certain costs associated with the USAA AMCO Acquisition prior to the July 1, 2019 acquisition effective date, totaling $4.8 million for the six months ended June 30, 2019, which are reflected in our accompanying financial statements.

Costs related to acquisitions are summarized below and include legal and filing fees, advisory services, mutual fund proxy voting costs and other one-time expenses related to the transactions. These costs are included in “Acquisition-related costs” in the accompanying unaudited Condensed Consolidated Statements of Operations.