Hybrid Software Group PLC Annual Report 2022 Hybrid Software Group Strategic report Governance Financial statements Other information Hybrid Software Group PLC Annual Report 2022 108 109 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 34. ACQUISITIONS (CONTINUED) Acquisition of HYBRID Software Group S.à r.l. On 12 January 2021, the Group acquired the entire issued share capital of HYBRID Software Group S.à r.l. (“HYBRID Software”) from Congra Software S.à r.l. (“Congra”). The acquisition was a common control transaction due to the fact that both the Company and HYBRID Software were under the same parent company control (see Note 32 ‘Related parties’). An independent valuation report was commissioned by the Directors to enable them to negotiate the contractual acquisition price of €80 million. The consideration was satisfied in full by issuing 21,074,030 ordinary shares in the Company to Congra. The number of shares was calculated by reference to a trailing 30 trading-day volume weighted average price of the Company’s shares as traded on Euronext Brussels. Founded in 2007, headquartered in Luxembourg and with subsidiaries in Belgium, Germany, Italy, France, the UK and the USA, HYBRID Software is a software development company focused on innovative productivity tools for the graphic arts industry, predominantly print service providers and converters in the labels and packaging segments. HYBRID Software’s workflow software, editing software, and integration products offer a unique set of advantages that include native PDF workflows, vendor-independent solutions based on industry standards, scalable technology and low total cost of ownership. These products are used worldwide by customers in all areas of pre-press and printing, including labels and packaging, folding cartons, corrugated, wide format and digital printing. This acquisition is strategically important for the Group because HYBRID Software has a large end-user customer base supported by a worldwide sales and service organisation in the growing labels and packaging market and brings enterprise software technology and solutions to the Group. The acquisition allows the Group to further develop its digital print strategy with a more complete offering of products to open up new markets and potential customers. The Group is an important partner to the industry’s leading manufacturers and HYBRID Software adds to this capability, making a very compelling proposition in the market. The acquisition date fair value of the consideration was made up of: In thousands of euros Acquisition date market value of new shares issued as consideration 75,445 Total consideration 75,445 The Directors have considered the facts concerning a potential marketability discount and the relevant criteria in IFRS 13 and concluded that a fair value adjustment for marketability is not appropriate in this situation. This judgement is highly sensitive; a 0.5% discount would equate to a discount of €377,000 and a material reduction in the goodwill at the acquisition date. The identifiable assets acquired and liabilities assumed were: In thousands of euros Book value Fair value adjustment Total Property, plant and equipment 363 - 363 Right-of-use assets 1,375 - 1,375 Other intangible assets 5,114 34,485 39,599 Financial assets 6 - 6 Deferred tax assets 1,430 - 1,430 Inventories 5 - 5 Trade and other receivables 4,160 - 4,160 Prepayments 110 - 110 Cash and cash equivalents 2,142 - 2,142 Deferred tax liabilities - (8,824) (8,824) Trade and other payables (1,720) - (1,720) Accrued liabilities (665) - (665) Lease liabilities (1,375) ) - (1,375) Contract liabilities (2,183) - (2,183) Other liabilities (11,204) - (11,204) Total identifiable net (liabilities)/assets acquired (2,442) 25,661 23,219 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 34. ACQUISITIONS (CONTINUED) Acquisition of HYBRID Software Group S.à r.l. (continued) The trade receivables comprised of contractual amounts due, all of which was expected to be collected at the date of acquisition. The intangible assets recognised have been valued as follows: Intangible asset Valuation method Technology The average of the present value of cashflows from operating activities in relation to owned technology over a 12 year period (using a discount rate of 9%, an historical profit % level, an assumption that revenue will grow year-onyear during the valuation period and an obsolescence factor) and an estimate of the replacement cost (based on estimates of the number of employees and man years required to design and develop the software). Customer relationships The present value of cashflows from operating activities in relation to customer relationships existing at acquisition date over an 8 year period, using a discount rate of 9%, an historical profit % level and an historical annual attrition rate of those relationships. Goodwill was recognised as a result of the acquisition as follows: In thousands of euros Total consideration payable 75,445 Fair value of identifiable net assets (23,219) Total Goodwill 52,226 The goodwill represents the ability to develop new technology, opportunities expected from access to potential new customers, any value of intangible assets into perpetuity over their limited useful lives and the assembled workforce that does not meet separate recognition criteria. None of the goodwill recognised is expected to be deductible for tax purposes. During the year, the Group incurred acquisition-related costs of €43,000 in respect of this acquisition, which have been included in 'Other operating expenses’ in the consolidated statement of comprehensive income. Costs of €89,000 were incurred in the year ended 31 December 2021, related to the issue of the new shares were recognised directly in retained earnings. The costs incurred are in respect of a prospectus that is required to admit the new shares to trading on Euronext. Further costs of €36,000 were incurred in the year ended 31 December 2022 when the prospectus was published. For the period from acquisition to 31 December 2021, the revenues and the profit before tax generated by this acquisition were €20,739,000 and €6,481,000 respectively. If the acquisition had taken effect at the beginning of the reporting period in which the acquisition occurred (1 January 2021), on a pro forma basis, revenue of the combined Group for the year ended 31 December 2021 would have been increased by €644,000 and profit before tax would have increased by €201,000. Acquisition of ColorLogic GmbH On 27 October 2021, the Group acquired the entire issued share capital of ColorLogic GmbH (“ColorLogic”), a company with its registered office in Rheine, Germany. Founded in 2002, ColorLogic has developed an extensive portfolio of colour profiling and conversion software. Its products are sold worldwide to both end users with demanding requirements for colour quality, as well as to Original Equipment Manufacturers (OEMs) of printing equipment. This acquisition is strategically important for the Group because ColorLogic has long been respected as an industry leader in extended gamut colour management, and their tools provide the perfect combination of speed and quality for these demanding applications. The acquisition date fair value of the consideration was made up of: In thousands of euros Cash 4,381 Total consideration 4,381 The consideration is payable in instalments; €3,224,000 was paid on closing and €1,157,000 will be paid in 5 equal instalments on the anniversary of the closing date, starting in October 2022. A condition of the acquisition was that the seller, using a portion of the consideration received on closing, would procure €500,000 of the Company’s shares from an existing shareholder, Congra Software S.à r.l. (“Congra”). That condition was fulfilled by the seller and they acquired 101,176 shares of the Company from Congra on 21 January 2022. Under the terms of the acquisition, the seller requires the agreement of the Company to sell, transfer or otherwise dispose of any of those shares for a period of 12 months after the acquisition date of those shares.
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