[5] Acquisitions

Dematic

On 21 June 2016, the KION Group reached agreement with funds managed by AEA Investors and the Ontario Teachers’ Pension Plan to acquire 100 per cent of the capital and voting shares in DH Services Luxembourg Holding S.à r.l., Luxembourg. The deal was completed on 1 November 2016. DH Services Luxembourg Holding S.à r.l. is the parent company of the Dematic Group. The acquisition of Dematic, a leading specialist for automation and optimisation of supply chains, will make the KION Group one of the world’s top suppliers of solutions for Intralogistics 4.0. The KION Group’s sales and service network, technology and resources will enable it to offer customers of all sizes in diverse industries worldwide a complete range of material handling products and services. The KION Group is thus strengthening its position as a full-service provider of intelligent supply chain and automation solutions and can benefit from megatrends, such as digitalisation and the growing e-commerce business. With technology centres and production facilities worldwide, Dematic has more than 100 sites in 22 countries.

The cash consideration paid for the acquired net assets amounted to €1,782.7 million, plus €383.4 million to extinguish debt instruments. A cash flow hedge in connection with the purchase price obligation denominated in foreign currency (see note [40]) gave rise to exchange-rate-driven changes of €10.4 million, which were recognised as a basis adjustment. The forward exchange deals involved had been recognised beforehand using hedge accounting.

The incidental acquisition costs incurred by this business combination amounted to €20.2 million and have been recognised in consolidated profit or loss under administrative expenses. The impact of this acquisition on the consolidated financial statements of KION GROUP AG based on the incomplete figures available at the acquisition date is shown in > TABLE 046.

Impact of the acquisition of Dematic on the financial position of the KION Group

046

in € million

Fair value at the acquisition date

Goodwill

1,925.7

Customer relationships

673.5

Brand names

349.7

Technology & development

515.6

Other intangible assets

127.1

Other property, plant and equipment

153.4

Deferred taxes

105.0

Other non-current assets

28.2

Non-current assets

3,878.2

 

 

Inventories

83.1

Trade receivables

255.1

Cash and cash equivalents

74.6

Other current assets

69.3

Current assets

482.1

 

 

Total assets

4,360.3

 

 

Retirement benefit obligation

98.3

Non-current financial liabilities

516.1

Deferred taxes

614.6

Other non-current liabilities

10.5

Non-current liabilities

1,239.5

 

 

Current financial liabilities

334.8

Trade payables

220.3

Other current liabilities

399.6

Current liabilities

954.7

 

 

Total liabilities

2,194.2

 

 

Total net assets

2,166.1

 

 

Cash payment

1,782.7

Repayment of debt instruments

383.4

Consideration transferred

2,166.1

It has not been possible to complete the analysis of the acquired assets and assumed liabilities before the publication date for these consolidated financial statements because of the timing of the deal close to the reporting date, the complexity of the business model and the extent of the detailed information necessary to carry out the measurements. The above acquisition’s purchase price allocation as at 31 December 2016 should therefore be treated as incomplete in terms of the recognition and measurement of the acquired net assets at fair value – especially the measurement of the intangible assets, property, plant and equipment, construction contracts, inventories and provisions. Additionally, the deferred taxes should be considered as incomplete. Furthermore, the reported purchase price should be viewed as incomplete due to contractual verification by KION. The goodwill represents both the well-qualified workforce and the KION Group’s expectations of revenue synergies. The latter will be generated on the sales side as Dematic makes use of the comprehensive sales and service organisation of Linde and STILL in Europe. At the same time, Dematic’s strong market position in North America and elsewhere should help to stimulate the truck business outside Europe. The goodwill arising from this acquisition is currently not tax deductible. The derived goodwill is initially being assigned to the Dematic cash-generating unit (CGU).

For now, the useful lives applied to the customer relationships are 10 to 15 years, and to technology & development 15 years.

The receivables acquired as part of this transaction, which largely constitute trade receivables (€170.9 million) and unbilled receivables from construction contracts with a net credit balance (€96.1 million), totalled €267.1 million gross. At the acquisition date, it was assumed that trade receivables of €11.4 million and unbilled receivables from construction contracts with a net credit balance of €0.5 million would not be recoverable. Consolidated revenue rose by €259.5 million as a result of the acquisition. The net income reported for 2016 contains a loss totalling €26.5 million attributable to the entities acquired. If the business combination had been in place for the whole of the year, i.e. from 1 January 2016, this would have caused an increase in revenue of €1,705.0 million and a decrease in net income of €128.2 million for the KION Group in 2016. The loss from the acquired entities results from non-operating losses in the course of the amortisation of the fair values determined for the acquired assets on initial recognition of the business combination.

An agreement was reached with a group of banks for a bridge loan (acquisition facilities agreement, AFA) to finance the acquisition of Dematic. The original amount of the AFA was €3,000.0 million. This bridge loan was to be refinanced partly by long-term capital-market and bank debt and partly by equity. For this reason, KION GROUP AG implemented a capital increase in July 2016 that generated gross proceeds of €459.3 million (see disclosures in note [28]). The agreed financing volume was reduced by the proceeds from the issue of shares and, when the AFA was drawn down for the first time on 1 November 2016, amounted to €2,543.2 million.

The line item ‘Acquisition of subsidiaries (net of cash acquired) and other equity investments’ in the consolidated statement of cash flows contains a net cash outflow of €2,091.1 million for the acquisition of the Dematic Group.

Retrotech Inc.

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