(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.
Acquisitions in the previous year
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. The determination of the fair values for Exelead was completed by December 31, 2022.
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 was integrated into the Life Science Services business unit, which is part of the Life Science business sector.
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 primarily develops and produces precursors used in thin film deposition. The total purchase price involved payments totaling € 90 million, of which € 80 million and € 9 million were due and were paid in 2022 and 2023 respectively.
No preliminary purchase price allocation had taken place by the time the 2022 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 at this date. The purchase price allocation was completed in 2023 and served to reduce goodwill by € 5 million, which mainly resulted in a reclassification to other intangible assets.
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.
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 2022 consolidated financial statements were prepared. The total difference between the purchase price and the net assets acquired, amounting to € 72 million, was therefore recognized as goodwill on a preliminary basis at this date. The purchase price allocation was completed in 2023 and served to reduce goodwill by € 21 million, which mainly resulted in a reclassification to other intangible assets.
Adjustments to the prior-year consolidated balance sheet to reflect the purchase price allocations completed in fiscal 2023
In the case of the Erbi and M Chemicals acquisitions, the carrying amounts of the assets and liabilities as of the acquisition date were recognized as preliminary fair values in the previous year because the completion date was shortly before the reporting date. The completion of the purchase price allocations for both companies in 2023 resulted in the following adjustments:
€ million |
|
Dec. 31, 2022 |
|
Adjustments for |
|
Dec. 31, 2022 adjusted |
|---|---|---|---|---|---|---|
Non-current assets |
|
|
|
|
|
|
Goodwill |
|
18,415 |
|
-26 |
|
18,389 |
Intangible assets (excluding goodwill) |
|
7,302 |
|
34 |
|
7,335 |
Property, plant and equipment |
|
8,203 |
|
1 |
|
8,204 |
Other non-current assets |
|
2,406 |
|
– |
|
2,406 |
|
|
36,325 |
|
9 |
|
36,334 |
Current assets |
|
|
|
|
|
|
Current assets |
|
12,201 |
|
– |
|
12,201 |
|
|
12,201 |
|
– |
|
12,201 |
Total assets |
|
48,526 |
|
9 |
|
48,535 |
|
|
|
|
|
|
|
Equity |
|
|
|
|
|
|
Equity |
|
26,005 |
|
– |
|
26,005 |
|
|
26,005 |
|
– |
|
26,005 |
|
|
|
|
|
|
|
Non-current liabilities |
|
|
|
|
|
|
Other non-current provisions and liabilities |
|
11,729 |
|
– |
|
11,729 |
Deferred tax liabilities |
|
1,279 |
|
8 |
|
1,287 |
|
|
13,007 |
|
8 |
|
13,015 |
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Trade payables and other liabilities |
|
2,498 |
|
1 |
|
2,499 |
Other current liabilities |
|
7,016 |
|
– |
|
7,016 |
|
|
9,513 |
|
1 |
|
9,514 |
Total equity and liabilities |
|
48,526 |
|
9 |
|
48,535 |
Divestments
Sale of shares in Calypso Biotech B.V., Netherlands
Assets held for sale as of December 31, 2023, included equity and debt components in connection with the M Ventures portfolio company Calypso Biotech B.V., Netherlands (Calypso). Calypso is a biotech company that develops drug candidates for the treatment of autoimmune diseases. It was allocated to “Corporate and other”. The company was acquired in full by Novartis AG, Switzerland, on January 8, 2024. The disposal group included non-current equity instruments in a mid-double-digit million-euro amount that were measured at fair value through other comprehensive income subsequent to initial recognition, and a convertible bond issued by Calypso in a mid-single-digit million-euro amount that was measured at fair value through profit or loss subsequent to initial recognition. The cumulative income recognized in other comprehensive income amounted to € 48 million.