Halma

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Half Year Report 2012/13

10 Acquisitions

The Group made three acquisitions during the period. Below are summaries of the assets and liabilities acquired and the purchase consideration of:

a)  the total of all three acquisitions, including an adjustment to a prior period acquisition;

b)  the three acquisitions, namely Accutome, Inc., Sensorex Inc. and SunTech Medical Group Limited.

(A) Total of all three acquisitions and adjustments to prior period acquisition

 

Book
value
£000

Provisional fair value adjustments
£000

Total
£000

Non-current assets

 

 

 

Intangible assets

12

31,436

31,448

Property, plant and equipment

1,641

(305)

1,336

Deferred tax

212

698

910

Current assets

 

 

 

Inventories

7,379

(1,211)

6,168

Trade and other receivables

6,132

494

6,626

Cash and cash equivalents

3,641

(5)

3,636

Total assets

19,017

31,107

50,124

Current liabilities

 

 

 

Trade and other payables

(3,219)

(595)

(3,814)

Overdrafts

(116)

(116)

Bank loans

(1,307)

(1,307)

Provisions

(100)

(316)

(416)

Corporation tax

(44)

539

495

Non-current liabilities

 

 

Bank loans

(131)

(131)

Provisions

(21)

(25)

(46)

Deferred tax

(7,123)

(7,123)

Total liabilities

(4,938)

(7,520)

(12,458)

 

 

 

 

Net assets of businesses acquired

14,079

23,587

37,666

 

 

 

 

Cash consideration paid

 

 

67,760

Cash consideration to be paid (estimated)

 

 

804

Contingent purchase consideration (current period acquisitions)

 

 

6,977

Total consideration

 

 

75,541

 

 

 

 

Goodwill arising on current period acquisitions

 

 

37,875

Goodwill arising on prior period acquisitions

 

 

Goodwill arising on acquisitions

 

 

37,875

Due to their contractual dates, the fair value of receivables acquired (shown above) approximates to the gross contractual amounts receivable. The amount of gross contractual receivables not expected to be recovered is immaterial.

There are no material contingent liabilities recognised in accordance with paragraph 23 of IFRS 3 (Revised).

£9,586,000 of the goodwill arising on acquisitions in the period is expected to be deductible for tax purposes.

Together, all three acquisitions contributed £16,647,000 of revenue and £2,502,000 of profit after tax for the 26 weeks ended
29 September 2012. If these acquisitions had been held since the start of the financial period, it is estimated the Group's reported revenue and profit after tax would have been £2,621,000 and £418,000 higher, respectively.

Adjustments were made to the book values of the net assets of the companies acquired to reflect their provisional fair values to 
the Group. Acquired inventories were valued at the lower of cost and net realisable value adopting Group bases and any liabilities for warranties relating to past trading were recognised. Other previously unrecognised assets and liabilities at acquisition were included and accounting policies were aligned with those of the Group where appropriate.

The adjustment to a prior period acquisition resulted in a reclassification of balances between asset and liability categories, although overall the net asset adjustment was £nil.

Analysis of cash outflow in the Consolidated Cash Flow Statement

 

Unaudited
26 weeks to
29 September 2012
£000

Unaudited
26 weeks to
1 October
2011
£000

Audited
52 weeks to
31 March
2012
£000

Cash consideration in respect of current period acquisitions

67,760

13,383

13,305

Cash acquired on acquisitions

(3,636)

(49)

(49)

Overdrafts acquired on acquisitions

116

Contingent consideration paid in relation to prior period acquisitions*

15,764

5,395

5,411

Net cash outflow relating to acquisitions (per cash flow statement)

80,004

18,729

18,667

Bank loans acquired

1,438

1,144

1,144

Net cash outflow, including repayment of acquired bank loans

81,442

19,873

19,811

* Of the £15,764,000 (26 weeks to 1 October 2011: £5,395,000; 52 weeks to 31 March 2012: £5,411,000) contingent purchase consideration payment, £15,764,000 (26 weeks to 1 October 2011: £5,395,000; 52 weeks to 31 March 2012: £5,411,000) was provided in the prior period's financial statements.

(Bi) Accutome, Inc.

 

Book
value
£000

Provisional fair value adjustments £000

Total
£000

Non-current assets

 

 

 

Intangible assets

3

6,161

6,164

Property, plant and equipment

683

(39)

644

Deferred tax

375

375

Current assets

 

 

 

Inventories

2,768

111

2,879

Trade and other receivables

1,809

(527)

1,282

Total assets

5,263

6,081

11,344

Current liabilities

 

 

 

Trade and other payables

(1,418)

(392)

(1,810)

Overdrafts

(116)

(116)

Bank loans

(1,307)

(1,307)

Provisions

(49)

(94)

(143)

Non-current liabilities

 

Bank loans

(131)

(131)

Provisions

(25)

(25)

Deferred tax

(2,342)

(2,342)

Total liabilities

(3,021)

(2,853)

(5,874)

 

 

 

 

Net assets of businesses acquired

2,242

3,228

5,470

 

 

 

 

Cash consideration

 

 

11,230

Contingent purchase consideration

 

 

3,120

Total consideration

 

 

14,350

 

 

 

 

Goodwill arising on acquisition

 

 

8,880

On 2 April 2012, the Group acquired 100% of the issued share capital of Accutome, Inc. (Accutome) for US$17,995,000 (US$20,298,000 including repayment of US$2,303,000 bank loans). Accutome, based in Pennsylvania, USA, with a wholly owned subsidiary located in The Netherlands, designs, manufactures and sells surgical and diagnostic instruments and a variety of pharmaceuticals for the ophthalmic marketplace. Accutome is best known for its leading ultrasound diagnostic equipment (used prior to cataract surgery and to diagnose certain eye conditions) and for its surgical instrumentation, featuring its leading diamond bladed surgical knives. Accutome forms part of the Health and Analysis sector and was acquired to further expand Halma's footprint in ophthalmic diagnostic and surgical instrumentation. The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by supplier arrangement intangibles of £2,102,000, customer-related intangibles of £2,861,000 and brand intangibles of £1,201,000 with residual goodwill arising of £8,880,000. The goodwill represents:

a)  the value of the acquired workforce;

b)  the ability to exploit Accutome's distribution arrangements;

c)  potential synergies with other Halma companies within the ophthalmic market; and

d)  the ability to exploit the Group's existing distribution arrangements, particularly outside North America.

Contingent consideration of between US$nil and US$5,000,000 is payable dependent on the profits of the acquired business
for the period up to September 2013. The Directors estimate that contingent consideration of US$5,000,000 will be paid.

(Bii) Sensorex Inc.

 

Book
value
£000

Provisional fair value adjustments £000

Total
£000

Non-current assets

 

 

 

Intangible assets

12,689

12,689

Property, plant and equipment

286

286

Current assets

 

 

 

Inventories

564

(110)

454

Trade and other receivables

1,177

(5)

1,172

Total assets

2,027

12,574

14,601

Current liabilities

 

 

 

Trade and other payables

(268)

(10)

(278)

Provisions

(193)

(193)

Total liabilities

(268)

(203)

(471)

 

 

 

 

Net assets of businesses acquired

1,759

12,371

14,130

 

 

 

 

Cash consideration

 

 

23,716

Contingent purchase consideration

 

 

Total consideration

 

 

23,716

 

 

 

 

Goodwill arising on acquisition

 

 

9,586

On 2 April 2012, the Group acquired the trade and assets of Sensorex Inc. (Sensorex) for US$38,003,000. Sensorex, based
in California, USA, manufactures electrochemical sensors for water analysis applications. Sensorex forms part of the Health
and Analysis sector and was acquired for its range of sensors and associated accessories, which are incorporated by OEMs manufacturing single and multi-parameter probes and instruments for monitoring water quality, a market that is forecast to see continued growth. The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented
by customer-related intangibles of £9,998,000 and technological know-how intangibles of £2,691,000 with residual goodwill arising of £9,586,000. The goodwill represents:

a)  the value of the acquired workforce;

b)  potential synergies with other Halma companies within the Water market, especially the hubs in China and India; and

c)  the ability to exploit the Group's existing distribution arrangements, particularly outside the USA.

There are no contingent consideration payment arrangements.

(Biii) SunTech Medical Group Limited

 

Book
value
£000

Provisional fair value adjustments £000

Total
£000

Non-current assets

 

 

 

Intangible assets

9

12,586

12,595

Property, plant and equipment

672

(266)

406

Deferred tax

212

323

535

Current assets

 

 

 

Inventories

4,047

(1,212)

2,835

Trade and other receivables

3,146

1,026

4,172

Cash and cash equivalents

3,641

(5)

3,636

Total assets

11,727

12,452

24,179

Current liabilities

 

 

 

Trade and other payables

(1,540)

(191)

(1,731)

Provisions

(51)

(29)

(80)

Corporation tax

(37)

539

502

Non-current liabilities

 

 

 

Provisions

(21)

(21)

Deferred tax

(4,783)

(4,783)

Total liabilities

(1,649)

(4,464)

(6,113)

 

 

 

 

Net assets of businesses acquired

10,078

7,988

18,066

 

 

 

 

Cash consideration

 

 

32,814

Cash consideration to be paid (estimated)

 

 

804

Contingent purchase consideration

 

 

3,857

Total consideration

 

 

37,475

 

 

 

 

Goodwill arising on acquisition

 

 

19,409

On 31 May 2012 the Group acquired 100% of the issued share capital of the SunTech Medical Group Limited (SunTech), which is primarily based in the USA, UK and China. The initial cash consideration of US$51,000,000 is adjustable based on the final level of agreed working capital. SunTech forms part of the Health and Analysis sector and is a pre-eminent supplier of clinical grade non-invasive blood pressure monitoring products and technologies. The excess of the fair value of the consideration paid over the fair value of the assets acquired is represented by customer-related intangibles of £6,103,000, technological know-how intangibles of £3,641,000 and brand intangibles of £2,842,000 with residual goodwill arising of £19,409,000. The goodwill represents:

a)  the value of the acquired workforce; and

b)  potential synergies with other Halma companies within the blood pressure monitoring market.

Contingent consideration of between US$nil and US$6,000,000 is payable dependent on the profits of the acquired business
for the twelve months to December 2012. The Directors estimate that contingent consideration of US$6,000,000 will be paid.