Accounting Policy
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired, and liabilities and contingent liabilities assumed, in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any non-controlling interest. Any adjustments to the purchase price allocation are made within the one-year measurement period in accordance with IFRS 3. On an acquisition-by-acquisition basis, the Group recognizes any non-controlling interest in the acquired subsidiary either at fair value or at the non-controlling interest’s proportionate share of the acquired subsidiary’s net assets.
The excess of the consideration transferred, the amount of any non-controlling interest in the acquired subsidiary and the acquisition-date fair value of any previous equity interest in the acquired subsidiary over the fair value of the Group’s share of the identifiable net assets acquired are recognized as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the consolidated Income Statement.
GrandVision applies the anticipated acquisition method where it has the right and the obligation to purchase any remaining non-controlling interest (so-called put/call arrangements). Under the anticipated acquisition method, the interests of the non-controlling shareholder are presented as already owned, even though legally they are still non-controlling interests. The recognition of the related financial liability implies that the interests subject to the purchase are deemed to have been acquired already. The initial measurement of the fair value of the financial liability recognized by the Group forms part of the contingent consideration for the acquisition.
Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability are recognized in accordance with IFRS 9 in the consolidated Income Statement. Contingent considerations qualify for the level 3 fair value category. See note 3.3 for a description of the different levels of valuation categories. The valuation techniques and fair value levels are consistent compared with prior year.
Acquisition-related expenses are taken into the consolidated Income Statement at the moment they are incurred.
Significant Accounting Estimates and Judgments
When a company is acquired, the fair value of the intangible assets is determined. The determination of the value at the time of acquisition and estimated useful life is subject to uncertainty. Useful life is estimated using past experience and the useful life period, as is broadly accepted in the retail sector.
For the Group, common intangible assets identified during acquisition are trademarks and customer databases. The following assumptions are the most sensitive when estimating the value: royalty rate, revenue and EBITA growth, discount rate, churn rate.
The following acquisitions and adjustments to the purchase price allocation were done in 2019
Charlie Temple
On January 25, 2019 the Group acquired 67% of Charlie Temple, the leading online optical retailer in the Netherlands. As part of the agreement GrandVision’s shareholding will increase in three steps, to 100% in 2023. This acquisition is an important step in the development of a digital platform for the Group and will enable the Group to build a stronger presence in the segment of the online market at a much faster pace. The Group paid €20,847 in cash and recognized a total contingent consideration of €7,036 relating to its obligation to increase its shareholding by a further 33% in three steps in 2021, 2022 and 2023.
The contingent consideration is calculated using average net sales and average EBITDA multiple of Charlie Temple corrected for changes in net debt based on agreed business targets by Charlie Temple, adjusted for the time value of money. The higher average net sales and average EBITDA multiple, the higher the contingent cinsideration will be. This contingent consideration has been included as a part of Other Non-Current Liabilities.
Based on the purchase price allocation an amount of €23,476 is identified as goodwill and represents increase in Group's online market position and assembled workforce. The purchase price allocation has been completed. Charlie Temple forms part of the G4 segment.
Óptica2000
On February 20, 2019 the Group acquired 100% of Óptica2000 through its Spanish business in the Other Europe segment. The acquisition incorporates Óptica2000's network of 108 optical stores across Spain and Portugal, with the majority of these establishments in the El Corte Ingles department stores. With this acquisition the Group further strengthened its market position in Spain. Total consideration for the acquisition of the assets, consisting mainly of customer database, trademark and concession agreement, is €89,563. The Group paid €79,056 in cash and took over from the seller a liability of €10,507.
Based on the purchase price allocation an amount of €29,598 was identified as goodwill. The goodwill mainly comprises the expected expansion in the Spanish market and synergies following the integration of the acquired business into our existing organization, which cannot be recognized as separately identifiable assets. The purchase price allocation has been completed.
McOptic
On July 31, 2019 the Group acquired 100% of McOptic through its Swiss business in the Other Europe segment. The acquisition incorporates McOptic's network of 62 optical stores in Switzerland. With this acquisition the Group further strengthened its market position in Switzerland. The Group paid €40,294 (CHF 44,473) in cash for the acquisition of the assets consisting mainly of customer database, trademark, unfavourable supplier contract (see note 28).
Based on the initial purchase price allocation an amount of €37,398 (CHF 41,277) was identified as provisional goodwill. The goodwill mainly comprises the expected expansion in the Swiss market and synergies following integration of the acquired business into our existing organization, which cannot be recognized as separately identifiable assets. The purchase price allocation has been largely completed pending final valuation of identified assets.
Store acquisitions
During 2019 the Group acquired 60 stores across the G4 and Other Europe segments. With these acquisitions the Group further strengthened its market position within the respective regions. After the initial allocation of the consideration transferred for the acquisitions of the assets, liabilities and contingent liabilities in 2019, an amount of €9,330 is identified as goodwill. The goodwill is attributable to the expected synergies following the integration of the acquired businesses into our existing organization. The goodwill mainly comprises the skilled employees, the locations of the acquired stores and other items, which cannot be recognized as separately identifiable assets.
The Group recognized a deferred consideration of €4,852 relating to outstanding payments for an acquisition in Germany, which will be paid in 2020, 2021 and 2022. This deferred consideration has been included as a part of Other Non-Current and Current Liabilities (see notes 28 and 29).
Details of the net assets acquired, related consideration and adjustments to purchase price allocation are set out below:
in thousands of EUR | Notes | Charlie Temple | Óptica2000 | McOptic | Stores acquisitions | Total |
|---|---|---|---|---|---|---|
Property, plant and equipment | 634 | 3,992 | 2,076 | 2,618 | 9,320 | |
Right-of-Use Assets | 43 | 3,291 | 13,680 | 6,264 | 23,278 | |
Other intangibles assets | 4,866 | 58,324 | 18,101 | 9,880 | 91,171 | |
Deferred income tax assets | - | 1,314 | 9,078 | - | 10,392 | |
Other non-current assets | - | 100 | 1,065 | 65 | 1,230 | |
Inventories | 1,195 | 5,957 | 3,843 | 808 | 11,803 | |
Trade and other receivables | 457 | 8,817 | 1,949 | 547 | 11,770 | |
Cash and cash equivalents | - 174 | 6,348 | 4,955 | 1,200 | 12,329 | |
Deferred income tax liabilities | - 1,145 | - 15,317 | - 8,640 | - 2,739 | - 27,841 | |
Retirement benefit obligations | - | - | - 10,974 | - | - 10,974 | |
Lease liabilities | - 55 | - 3,291 | - 13,680 | - 3,480 | - 20,506 | |
Other non-current liabilities | - | - | - 11,411 | - 10 | - 11,421 | |
Current borrowings | - | - | - | - 345 | - 345 | |
Trade and other payables | - 1,414 | - 9,570 | - 7,146 | - 1,950 | - 20,080 | |
Total identifiable net assets and liabilities at fair value | 4,407 | 59,965 | 2,896 | 12,858 | 80,126 | |
Consideration paid | 20,847 | 89,563 | 40,294 | 16,122 | 166,826 | |
Cash and cash equivalents and bank overdrafts at acquired subsidiary | - 174 | 6,348 | 4,955 | 1,200 | 12,329 | |
Outflow of cash and cash equivalents net of cash acquired | 21,021 | 83,215 | 35,339 | 14,922 | 154,497 | |
Consideration paid | 20,847 | 89,563 | 40,294 | 16,122 | 166,826 | |
Consideration to be transferred | 7,036 | - | - | 6,066 | 13,102 | |
Total consideration transferred or to be transferred | 27,883 | 89,563 | 40,294 | 22,188 | 179,928 | |
Minus: Identifiable net assets and liabilities at fair value | - 4,407 | - 59,965 | - 2,896 | - 12,858 | - 80,126 | |
Goodwill | 23,476 | 29,598 | 37,398 | 9,330 | 99,802 |
The acquisitions in 2019 contributed the following in revenue and net result for the Group:
in thousands of EUR | Charlie Temple | Óptica2000 | McOptic | Stores acquisitions | Total | |
|---|---|---|---|---|---|---|
Revenue | 7,375 | 72,862 | 19,505 | 19,448 | 119,190 | |
Net result | - 1,861 | 3,824 | - 1,109 | 5,293 | 6,147 |
Had the acquisitions in 2019 been consolidated for the full year, revenue and net result would be:
in thousands of EUR | Charlie Temple | Óptica2000 | McOptic | Stores acquisitions | Total | |
|---|---|---|---|---|---|---|
Revenue | 8,100 | 84,769 | 47,251 | 34,493 | 174,613 | |
Net result | - 1,907 | 4,621 | - 156 | 9,078 | 11,636 |
Acquisition costs for the above acquisitions amount to €2,056 and are included in the general and administrative costs in the consolidated Income Statement.