(6) Acquisitions and divestments
Accounting and measurement policies
Business combinations
The balance sheet items goodwill, other intangible assets, and deferred taxes are significantly influenced by purchase price allocations conducted within the scope of business combinations. As observable market prices are mostly not available for the acquired other intangible assets, the Group regularly relies on the expertise of external professionals when it comes to business combinations. The following overview shows the methods typically used to measure intangible assets within the scope of purchase price allocations:
|
|
Measurement method for determining fair value |
|---|---|---|
Customer relationships |
|
Multi-period excess earnings method |
Technology |
|
Relief from royalty method |
Trademark |
|
Relief from royalty method |
Results from foreign currency hedging of expected business combinations, if they meet the requirements for hedge accounting, are offset against the carrying value of the net assets acquired.
Where management considers it to be appropriate, the optional concentration test set out in IFRS 3.B7B is applied in individual transactions in order to determine the presentation of the transaction in the consolidated financial statements.
Significant discretionary decisions and sources of estimation uncertainty
Business combinations
In particular, estimation uncertainty and discretionary decisions in conjunction with purchase price allocation relate to
- planning of future cash flows,
- the customer churn rate, which indicates how existing customer relationships will change in the future,
- the license rate for technologies, which estimates royalty savings on the basis of comparable transactions of similar technologies,
- the discount factor, which is applied for maturity- and risk-based discounting of expected cash inflows, and
- the useful life and the degree of technical obsolescence which depend, among other things, on assumptions about technological developments.
Divestments
The assessment as to when a non-current asset, disposal group, or discontinued operation meets the prerequisites of IFRS 5 for classification as “held for sale” is subject to discretionary judgment. Even in the case of an existing management decision to review a disposal, an uncertain assessment has to be made as to the probability of whether a corresponding disposal will occur during the year.
Acquisitions
Acquisition of Exelead Inc., United States
On December 30, 2021, the Group signed a definitive agreement to acquire Exelead Inc., United States (Exelead), a biopharmaceutical contract development and manufacturing organization (CDMO). The transaction closed on February 22, 2022, after regulatory clearances and the satisfaction of other customary closing conditions. The purchase price amounted to US$ 793 million (€ 702 million) in cash. In the consolidated cash flow statement, € 694 million has been disclosed as net cash outflows from acquisitions less acquired cash and cash equivalents.
Exelead specializes in complex injectable formulations, including the lipid nanoparticles that are key components of mRNA (messenger ribonucleic acid) therapeutics for treating Covid-19 and other indications. The aim of the acquisition is to use Exelead’s capacities and expertise to expand the service range for mRNA contract development and manufacturing and to provide a fully integrated offering across the entire mRNA manufacturing process. The business is being integrated into the Life Science Services business unit, which is part of the Life Science business sector.
Material contingent liabilities were not identified as part of the purchase price allocation.
The positive difference between the purchase price and the net assets acquired of € 462 million was recognized as goodwill. This includes expected earnings synergies resulting from the integration of Exelead into the Group, expected revenues from technical innovations and developments that go beyond the current product, development, and customer portfolios, and unrecognized intangible assets such as the expertise of the workforce. The goodwill was allocated in full to the Life Science business sector. As expected, the goodwill is non-tax deductible. As a result of foreign exchange developments, goodwill carried in U.S. dollars increased from € 462 million on first-time recognition to € 490 million as of December 31, 2022.
For the period between the acquisition and December 31, 2022, the legacy Exelead business contributed € 75 million to Group net sales as well as € -37 million to net income after taxes. This result also includes higher cost of sales due to the step-up of the acquired inventories to fair values as well as the amortization of assets identified and remeasured during purchase price allocation.
Assuming the first-time consolidation of Exelead as of January 1, 2022, sales of the Group for the period would have been € 22,241 million (compared with reported net sales of € 22,232 million), and net income after taxes would have been € 3,337 million (compared with reported net income after taxes of € 3,339 million). When calculating these figures, it was assumed that the adjustments to carrying amounts resulting from purchase price allocation had been identical and would have been taken into account in accordance with their useful life in terms of their effects on the consolidated income statement.
Acquisition of the chemicals business of Mecaro Co. Ltd., Korea
On December 30, 2022, the Group successfully completed the acquisition of the chemicals business of Mecaro Co. Ltd., Korea (Mecaro), trading as M Chemicals Inc., Korea (M Chemicals), after obtaining the necessary regulatory clearances; the acquisition had been announced on August 17, 2022. Mecaro is a Korea-based, publicly listed manufacturer of heater blocks and chemical precursors for semiconductors.
The acquisition forms part of the Level Up growth program of the Electronics business sector. M Chemicals has around 100 employees and primarily develops and produces precursors used in thin film deposition. The total purchase price involves payments totaling € 90 million, of which € 80 million were due and had been paid as of the reporting date. In the consolidated cash flow statement, € 77 million was recognized in net cash outflows from acquisitions less acquired cash and cash equivalents. The contractually agreed contingent milestone payments have not led to an increase of the transaction price.
No preliminary purchase price allocation had taken place by the time the Consolidated Financial Statements were prepared. The total difference between the purchase price and the net assets acquired, amounting to € 46 million, was therefore recognized as goodwill on a preliminary basis. The goodwill was allocated in full to the Electronics business sector. As expected, it is non-tax deductible. The goodwill was recognized in South Korean won.
Acquisition of Erbi Biosystems Inc., United States
The Group acquired all the shares in Erbi Biosystems Inc., United States (Erbi), on December 1, 2022. The purchase price amounted to € 78 million in cash. In the consolidated cash flow statement, € 73 million was recognized in net cash outflows from acquisitions less acquired cash and cash equivalents and other adjustments.
Erbi is the developer of Breez™, one of the few micro-scale, fully automated, functionally closed and continuous perfusion cell culture platform technologies on the market. By integrating Breez™ into its existing Mobius® portfolio, the Group can offer a full range of bioreactors, cell retention systems and devices as well as cell culture media. The business is allocated to the Process Solutions business unit in the Life Science business sector.
No preliminary purchase price allocation had taken place by the time the Consolidated Financial Statements were prepared. The total difference between the purchase price and the net assets acquired was therefore recognized as goodwill. The goodwill was recognized in full in the Life Science business sector. As expected, it is non-tax deductible. As a result of foreign exchange developments, goodwill carried in U.S. dollars decreased from € 74 million on first-time recognition to € 72 million as of December 31, 2022.
Fair value of the acquisitions
The determination of the fair values for Exelead was performed by an external valuation expert and completed by December 31, 2022. In the case of the Erbi and M Chemicals acquisitions, the carrying amounts as of the acquisition date have been recognized as preliminary fair values because the completion date was shortly before the reporting date. The fair values for the acquisitions were as follows:
|
|
Fair value at the acquisition date |
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€ million |
|
Exelead |
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Other aquisitions1 |
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|---|---|---|---|---|---|---|---|---|
Non-current assets |
|
|
|
|
||||
Intangible assets (excluding goodwill) |
|
160 |
|
1 |
||||
Property, plant and equipment |
|
49 |
|
31 |
||||
Other non-current assets |
|
3 |
|
– |
||||
|
|
213 |
|
32 |
||||
Current assets |
|
|
|
|
||||
Inventories |
|
47 |
|
10 |
||||
Trade and other current receivables |
|
12 |
|
2 |
||||
Cash and cash equivalents |
|
8 |
|
5 |
||||
Other current assets |
|
27 |
|
– |
||||
|
|
94 |
|
18 |
||||
Total assets |
|
307 |
|
50 |
||||
|
|
|
|
|
||||
Non-current liabilities |
|
|
|
|
||||
Other non-current provisions and liabilities |
|
4 |
|
1 |
||||
Deferred tax liabilities |
|
41 |
|
– |
||||
|
|
45 |
|
1 |
||||
Current liabilities |
|
|
|
|
||||
Trade payables and other liabilities |
|
13 |
|
– |
||||
Other current liabilities and provisions |
|
9 |
|
2 |
||||
|
|
22 |
|
2 |
||||
Total liabilities |
|
67 |
|
3 |
||||
|
|
|
|
|
||||
Net assets acquired |
|
240 |
|
47 |
||||
|
|
|
|
|
||||
Purchase price for the acquisition of shares in accordance with IFRS 3 |
|
702 |
|
167 |
||||
Positive difference (goodwill) |
|
462 |
|
120 |
||||
|
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