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5 Business combinations

Acquisitions in 2015/2016
During 2015/2016 Ernst & Young Participaties B.V. acquired 100% of the shares of the following entities:

  • Integrc Netherlands B.V. (hereafter: Integrc) - 3 August 2015
  • Intelligence in Information B.V. (hereafter: EY i3) – 1 March 2016. After acquisition the name has been changed to EY Intelligence in Information B.V.
  • Montesquieu Finance B.V. and Montesquieu Institutional Risk Management B.V. (hereafter: EY Montesquieu) – 2 May 2016. After acquisition the names have been changed to EY Montesquieu Finance B.V. and EY Montesquieu Institutional Risk Management B.V.
Integrc is a leading provider of governance, risk and compliance (GRC) services to companies that run SAP. The acquisition will help to strengthen EY’s position as an industry leader in SAP GRC services by further enhancing its end-to-end offering — from strategy to technology implementation.

EY i3 provides services in the field of business intelligence, data analytics and predictive analytics, and is one of the leading players in the market. EY i3 provides consultation services for al large number of notable companies. The field of business intelligence and data analytics constitutes a global growth market. This acquisition will enable us to meet the requirements of our customers more effectively when it comes to providing specialised advice in these areas.

EY Montesquieu is a leading consultancy firm in the field of financing and risk management. Based in Maastricht, EY Montesquieu advises businesses, institutions and institutional investors throughout the Netherlands on issues of financing, as well as on how to gain insight into and manage financial risks, including currency and interest rate risks.

Assets acquired and liabilities assumed
The total fair value of the identifiable assets and liabilities of the acquired entities as at the dates of acquisition were:

  notes   Fair value
recognized on
acquisition
      €000
Assets      
Intangible assets identified at acquisition date     1,520
Intangible fixed assets     35
Property, plant and equipment     406
Trade and other receivables     2,871
Cash and cash equivalents     231
       
      5,063
Liabilities      
Trade and other payables     2,287
       
Total identifiable net assets at fair value     2,776
       
Goodwill arising on acquisition 11   5,146
       
Purchase consideration transferred     7,922


The fair value of the trade receivables amounts to €2.2 million. The gross amount of trade receivables is €2.2 million. None of the trade receivables have been impaired and it is expected that the full contractual amounts can be collected.

At acquisition date, intangible assets of €1.5 million were recognized, comprising of customer relationships, brand name and software.

The goodwill of €5.1 million comprises of the value of expected synergies arising from the acquisitions, the value of the assembled workforce which cannot be separately recognized and the expected growth of the profitability, to be realised by new costumers. Goodwill is assessed on the level of EYA. None of the goodwill recognized is expected to be deductible for corporate income tax purposes.

From the dates of acquisition, the acquired entities have contributed €4.4 million of revenue and €0.2 million to the gross margin of EYNL. If all the acquisitions had taken place at the beginning of the financial year, revenue from continuing operations would have been further increased with €5.6 million and the gross margin would have been increased with €1.1 million.

Purchase consideration

    €000
     
Cash paid   6,558
Employee retention consideration   1,364
     
Total consideration   7,922
     
Analysis of cash flows on acquisition    
     €000
     
Cash paid   -6,558
Net cash acquired with the subsidiary (included in cash flows from investing activities)   231
     
Net cash flow on acquisition   -6,327

Employee retention consideration
As part of the purchase agreements there will be conditional cash payments to the previous owners of the acquired entities of a total amount of €1.4 million. The first instalments are payable one year after the dates of completion and the second two years after the dates of completion.

Shareholders retention consideration and earn out consideration
As part of the purchase agreements with the previous owners of Integrc and EY Montesquieu, earn out considerations have been agreed. Subject to the retention of the former ultimate shareholders, there will be additional cash payments of maximum €6.0 million, based on three annual payments depending on the achieved levels of revenues.

With the previous owners of EY i3, a shareholders retention consideration has been agreed. There will be additional cash payments for a total amount of €0.6 million, depending on the retention of the ultimate shareholders. The first instalment is payable one year after the date of completion and the second two years after the date of completion.

The above considerations explicitly focusses on the tenure of the selling shareholders. Therefore these payments are considered as remuneration for post-combination services (employee benefits) and are not included in the total consideration for the shares. For the current financial year an amount of €0.6 million is included in the employee benefit expenses.

Acquisitions in 2014/2015
On 3 November 2014 Ernst & Young Participaties B.V. acquired 100% of the shares of Centre B.V. Centre B.V. was founded in 2005 and offers EPM services (financial consolidation, budgeting/ planning/ forecasting, management reporting and analytics) to large international clients.

Assets acquired and liabilities assumed
The fair value of the identifiable assets and liabilities of Centre B.V. as at the date of acquisition were:

  notes   Fair value
recognized on
acquisition
      €000
Assets      
Intangible assets identified at acquisition date     1,256
Intangible fixed assets     11
Property, plant and equipment     61
Trade and other receivables     1,441
Cash and cash equivalents     19
       
      2,788
Liabilities      
Trade and other payables     1,115
       
Total identifiable net assets at fair value     1,673
       
Goodwill arising on acquisition 11   2,113
       
Purchase consideration transferred     3,786

During 2015/2016 the deferred consideration of Centre B.V. was reassessed. Part of the deferred consideration is now accounted for as employee benefits expense, resulting in a goodwill adjustment of €0.9 million.

The fair value of the trade receivables amounts to €1.4 million. The gross amount of trade receivables is €1.4 million. None of the trade receivables have been impaired.

At acquisition date, customer relationships of €1.3 million were separately recognized.

The goodwill of €2.1 million comprises the value of the assembled workforce which cannot be separately recognized. Goodwill is assessed on the level of EYA. None of the goodwill recognized is expected to be deductible for income tax purposes.

The acquisition took place at 3 November 2014. From the date of acquisition to 30 June 2015, Centre B.V. has contributed €1.7 million of revenue and €0.4 million to the gross margin of EYNL. If the acquisition had taken place at the beginning of the financial year 2014/2015, revenue from continuing operations for the year 2014/2015 would have been further increased with €0.9 million and the profit from continuing operations for EYNL would have been increased with €0.2 million.

Purchase consideration
    €000
     
Cash paid   1,889
Deferred consideration – fixed   845
Contingent consideration – earn out   1,052
     
Total consideration   3,786
     
Analysis of cash flows on acquisition    
    €000
     
Cash paid   -1,889
Net cash acquired with the subsidiary (included in cash flows from investing activities)   19
     
Net cash flow on acquisition   -1,870

Contingent consideration
As part of the purchase agreement with the previous owners of Centre B.V., a contingent consideration was agreed, depending on the achieved levels of revenues and gross margin in FY15 and FY16. The contingent consideration liability was due for final measurement on
30 June 2016. As the conditions were not met, it was remeasured to nil (30 June 2015: €0.3 million).