Dechra Pharmaceuticals PLC

Dechra Pharmaceuticals PLC

Annual Report and Accounts for the year ended 30 June 2012

28. Acquisitions

Acquisition of Eurovet Animal Health B.V.

On 23 May 2012, the Group acquired 100% of the share capital of Eurovet Animal Health B.V. obtaining control of Eurovet. Eurovet is a veterinary pharmaceuticals business based in mainland Europe with its head office, manufacturing facility, research and development team and central sales and marketing office located in the Netherlands. Additionally, it has operations in Germany, Belgium, Denmark and the United Kingdom.

It has highly complementary products, geographies, manufacturing competencies and is similar in structure to Dechra Veterinary Products.

Book value
£'000
Provisional fair value
£'000
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Property, plant and equipment9,4549,454
Trade and other receivables6,6006,596
Inventory12,79512,507
Cash and cash equivalents3,9893,989
Indentifiable intangible assets14,62078,703
Identifiable liabilities
Trade and other payables(8,354)(8,825)
Employee benefit obligations(341)(341)
Current tax(1,041)(1,690)
Deferred tax(858)(20,531)
Net identifiable assets36,86479,862
Goodwill36,348
Total consideration116,210
Satisfied by:
Cash116,210
Total consideration transferred116,210
Net cash outflow arising on acquisition
Cash consideration116,210
Less: cash and cash equivalent balances acquired(3,989)
112,221

The fair values shown above are provisional and may be amended if information not currently available comes to light. The fair value of the financial assets includes trade receivables with a fair value of £5,669,000.

The provisional fair value adjustments principally relate to harmonisation with Group IFRS accounting policies, including the application of fair values on acquisition, principally the recognition of product rights in accordance with IFRS 3.

The goodwill of £36,348,000 arising from the acquisition consists of the synergies, assembled workforce, technical expertise and the increased geographical presence in Germany and the Netherlands. None of the goodwill is expected to be deductible for income tax purposes.

Acquisition related costs (included in operating expenses) amounted to £2,315,000. Eurovet's results are reported within the European Pharmaceuticals segment.

Eurovet contributed £7,127,000 revenue and £852,000 to the Group's underlying pre-tax profit for the period between the date of acquisition and the balance sheet date. If the acquisition of Eurovet had been completed on the first day of the financial year, Group revenues for the period would have been £500,775,000 and the Group underlying pre-tax profit would have been £40,898,000.

Acquisition of Genitrix Limited

On 1 December 2010, the Group acquired 100% of the share capital of Genitrix Limited. The acquisition of Genitrix Limited, a veterinary pharmaceuticals company based in Billingshurst, UK, is consistent with our strategy to grow our domestic and international pharmaceutical business.

Book value
£'000
Fair value
£'000
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Intangible assets184184
Property, plant and equipment2723
Trade and other receivables326326
Inventory217217
Cash and cash equivalents5959
Identifiable intangible assets5,596
Identifiable liabilities
Trade and other payables(318)(318)
Deferred tax liabilities(36)(1,546)
Net identifiable assets4594,541
Goodwill1,845
Total consideration6,386
Satisfied by:
Cash5,586
Contingent consideration arrangement800
Total consideration transferred6,386
Net cash outflow arising on acquisition
Cash consideration5,586
Less: cash and cash equivalent balances acquired(59)
5,527

The fair value of the financial assets includes trade receivables with a fair value of £290,000. The fair value adjustment in relation to intangible assets recognises product rights in accordance with IFRS 3.

The goodwill of £1,845,000 arising from the acquisition consists of the assembled workforce and associated technical expertise. None of the goodwill is expected to be deductible for income tax purposes.

The contingent consideration arrangement, which has been reassessed between the date of acquisition and the year end and remains unadjusted, requires payment of £800,000 to be paid on the achievement of specific milestones. An amount of £500,000 was paid during the year ended 30 June 2012 leaving a remaining potential payment of £300,000.

Acquisition related costs (included in non-underlying operating expenses) amounted to £108,000.

Acquisition of DermaPet Inc.

On 22 October 2010, the Group acquired 100% of the share capital of DermaPet Inc., a Florida based business which develops and markets a range of dermatological preparations, including shampoos, conditioners and ear products, for the US and overseas companion animal markets. These veterinary products are marketed and distributed through the same channels as Dechra's current US product portfolio.

The acquisition of DermaPet Inc. increases Dechra's US presence and complements its EU range in this key strategic therapeutic category.

Book value
£'000
Fair value
£'000
Recognised amounts of identifiable assets acquired and liabilities assumed
Identifiable assets
Identifiable assets
Trade and other receivables1,0841,084
Inventory384384
Identifiable intangible assets38,909
Identifiable liabilities
Overdraft(1)(1)
Trade and other payables(216)(216)
Net identifiable assets1,25140,160
Goodwill326
Total consideration40,486
Satisfied by:
Cash27,519
Deferred consideration1,163
Contingent consideration arrangement11,804
Total consideration transferred40,486
Net cash outflow arising on acquisition
Cash consideration27,519
Add: bank overdraft1
27,520

The fair value of the financial assets includes trade receivables with a fair value of £1,076,000. The fair value adjustment in relation to intangible assets recognises product rights in accordance with IFRS 3.

The goodwill of £326,000 arising from the acquisition consists of the assembled workforce and increased geographical presence in the US. The goodwill and identified intangibles are expected to be deductible for income tax purposes.

The deferred consideration arrangement requires payments of US$1,000,000 to be paid on the second and fourth anniversaries of the completion date. The contingent consideration arrangement requires that if DermaPet Inc. achieves revenue in excess of US$15,000,000 in any rolling 12 month period commencing on the first anniversary of completion and ending on the sixth anniversary of completion, contingent consideration of US$15,000,000, which has been reassessed between the date of acquisition and the year end and remains unadjusted, will become payable. If revenue on the same criteria exceeds US$20,000,000, a further US$5,000,000 will become due.

Acquisition related costs (included in non-underlying operating expenses) amounted to £585,000.

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