30 Acquisitions.

30 Acquisitions.

Business combinations are accounted for using the purchase method, under which the acquirer recognises the acquiree’s fair value of the identifiable assets, liabilities and contingent liabilities at the acquisition date. Purchased goodwill is recognised as an asset on the balance sheet and is carried at cost less any accumulated impairment losses in accordance with IAS 36, ‘Impairment of Assets’.

Private equity investment vehicles classified as subsidiaries are those entities over which the Group directly or indirectly has the power to govern the operating and financial policies in order to gain economic benefits. Profits or losses of subsidiary undertakings sold or acquired during the period are included in the consolidated results up to the date of disposal or the date of gaining control.

(i) Subsidiaries

Cofunds (Holdings) Limited

On 22 May 2013, the Group increased its holding in the ordinary share capital of Cofunds (Holdings) Limited, the UK’s largest platform by assets under administration. This increased the Group’s holding in Cofunds (Holdings) Limited from 25% to 100%. The acquisition provides the Group with scale and distribution in the investment platform market.

Goodwill arising on acquisition was £65m. This represents the value of the consideration in excess of the recognised tangible assets, liabilities and intangible assets, primarily relating to future profits in excess of those recognised on current business or those expected to arise from current relationships with financial advisors. Goodwill has been allocated for impairment testing purposes to the Cofunds business unit.

In the period since acquisition of 100% of the ordinary share capital of Cofunds (Holdings) Limited, the pre-tax profit was £2m. Cofunds (Holdings) Limited would have contributed £4.3m to Group consolidated pre-tax profits if the acquisition had occurred on 1 January 2013.

In accordance with IFRS 3, Business Combinations, the acquisition has been treated as an acquisition achieved in stages. Revaluation of the previous carrying value of the Group’s 25% holding to acquisition date fair value has resulted in the recognition of a gain of £21m reported within operational income in the Consolidated Income Statement.

Lucida Limited

On 5 August 2013, the Group acquired 100% of the issued share capital of Lucida Limited (formerly Lucida PLC), an annuity provider, for £149m of cash, with no deferred consideration.

Negative goodwill arising on acquisition was £14m. This represents the fair value of the assets and liabilities acquired in excess of the consideration. Negative goodwill has been recognised immediately in the Consolidated Income Statement.

Since 5 August 2013 Lucida Limited has contributed £49m to Group consolidated profit before tax. Lucida Limited would have contributed £64m to Group consolidated profit before tax if the acquisition had occurred on 1 January 2013.

Investment Discounts Online Ltd (IDOL)

On 27 September 2013, the Group increased its existing shareholding of IDOL from 49% to 95% for a consideration of £6m. In accordance with IFRS 3, the Group has remeasured its previously held 49% equity interest on the acquisition date to fair value of £6m. Goodwill of £8m is recognised as the difference between the amount paid (£12m being the notional payment for 100%) and the fair value of the assets and liabilities acquired.

(XLS:) Goodwill arising on acquisition

 

Lucida
2013
£m

Cofunds
2013
£m

IDOL
2013
£m

Total
2013
£m

Consideration at date of acquisition

 

 

 

 

Cash payment for 100% acquisition

149

149

Cash payment for 75% acquisition

131

131

Cash payment for 46% holding

6

6

Acquisition date fair value of the 25% holding immediately prior to the acquisition

44

44

Acquisition date fair value of the 49% holding immediately prior to the acquisition

6

6

Total consideration for 100% holding

149

175

12

336

Recognised amounts of identifiable assets transferred and liabilities assumed at fair value

 

 

 

 

Purchased interest in long term business and other intangible assets

88

4

92

Other assets

1,351

44

1

1,396

Cash and cash equivalents

168

22

190

Non-participating contract liabilities

(1,294)

(1,294)

Other liabilities

(62)

(44)

(1)

(107)

Net assets attributable to equity holders of the Company

163

110

4

277

Goodwill arising on acquisition recognised in the Consolidated Income Statement

(14)

(14)

Goodwill arising on acquisition recognised in the Consolidated Balance Sheet

65

8

73

(ii) Associates/Joint Ventures

CALA Group Limited

On 18 March 2013, the Group paid £60m with an additional £7m deferred consideration for a 46.5% equity stake in CALA Group Limited. This investment has been made by way of a combination of £44m equity shares and a £23m subscription for loan notes (of which £7m is deferred). The equity investment has been accounted for as a joint venture applying the equity method.

On 18 December 2013, the Group made a £8m additional capital contribution, increasing the equity stake in CALA Group Limited to 47.1%.

(iii) Acquisitions of consolidated investment vehicles

On 5 October 2012, the Group acquired 55% of the ordinary share capital and £32m of loan notes issued by intermediate holding companies investing in Air Energi Holdings Limited, a provider of specialist services to the oil and gas industry. No goodwill arose in respect of this transaction.

There have been no acquisitions of consolidated investment vehicles in the current year.

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