Galenica - Rapport annuel 2021

4. Business combinations

Business combinations 2021

Acquisition of pharmacies. Galenica acquired 100% of the interests in pharmacies in various locations in Switzerland. Upon acquisition, the pharmacies were merged with Galenicare Ltd.

The purchase consideration amounted to CHF 10.2 million and was fully settled in cash. The fair value of the net identifiable assets amounts to CHF 0.6 million at the acquisition date. The goodwill of CHF 9.6 million was allocated to the operating segment Products & Care and corresponds to the added value of the pharmacies based on their locations. Transaction costs were insignificant.

Acquisition of the pharma business of Dr. Wild & Co. AG. On 27 May 2021, Galenica acquired the range of pharmaceutical products of the Swiss company Dr. Wild & Co. AG, including the well-known brands Vitamin D3 Wild Oil^® and VI–DE 3^®. In addition, the experienced physician field service of Dr. Wild & Co. AG was transferred to Verfora.

The purchase consideration amounted to CHF 34.6 million and was fully settled in cash. The fair value of the net identifiable assets amounted to CHF 26.7 million at the acquisition date. The goodwill of CHF 7.9 million was allocated to the operating segment Products & Care and corresponds to the added value based on the acquirer-specific synergies expected to arise from the acquisition in strengthening its leading position in the Swiss consumer healthcare (CHC) market and the know-how of the employees gained. Acquired intangible assets include trademarks with an indefinite useful life of CHF 22.8 million. Transaction costs were insignificant.

Acquisition of Lifestage Solutions Ltd. On 26 July 2021, Galenica acquired 100% of the shares in the Swiss company Lifestage Solutions Ltd. Lifestage Solutions develops and operates a fully integrated digital trading platform for home care organisations and nursing homes, which simplifies daily workflows for its customers using digitalisation and state-of-the-art technology.

The purchase consideration amounted to CHF 49.3 million, of which CHF 24.8 million was settled in cash and CHF 0.5 million was offset against loans. The contingent consideration in the amount of CHF 24.0 million is due in 2025 if certain sales targets are achieved. The fair value of the net identifiable assets amounted to CHF 3.9 million at the acquisition date. The goodwill of CHF 45.4 million was allocated to the operating segment Products & Care and corresponds to the added value based on the acquirer-specific synergies expected to arise from the acquisition in strengthening its position as a leading integrated healthcare service provider in the growth markets of home care and nursing homes in Switzerland and the know-how of the employees gained. The disclosed amounts were determined provisionally. Transaction costs were insignificant.

Acquisition of Spagyros Ltd. On 31 August 2021, Galenica acquired the remaining 92.1% shares of the Swiss company Spagyros Ltd. The remeasuring gain to fair value of the existing 7.9% amounted to CHF 0.2 million and was recorded in the financial income. The main activity of Spagyros is the production and marketing of homoeopathy, spagyric, gemmo- and phytotherapeutic medicines.

The purchase consideration amounted to CHF 6.4 million, of which CHF 2.0 million was settled in cash and CHF 4.3 million was offset against loans. The fair value of the pre-existing investment of 7.9% amounted to CHF 0.2 million. The fair value of the net identifiable assets amounted to CHF 4.8 million at the acquisition date. The goodwill of CHF 1.6 million was allocated to the operating segment Products & Care and corresponds to the added value based on the acquirer-specific synergies expected to arise from the acquisition in strengthening Verfora's leading position in the Swiss consumer healthcare (CHC) market and the know-how of the employees gained. Galenica will also be able to strengthen pharmacies and drugstores with the addition of a range of products in the growing area of complementary medicine. Acquired intangible assets include trademarks with an indefinite useful life of CHF 2.9 million. The disclosed amounts were determined provisionally. Transaction costs were insignificant.

Pro forma figures for acquisitions made in 2021 for the full 2021 financial year

Since their inclusion in Galenica's scope of consolidation, the businesses acquired contributed net sales of CHF 20.8 million and an operating result (EBIT) of CHF 3.0 million to the Group's results. If these acquisitions had occurred on 1 January 2021, they would have contributed additional net sales of CHF 23.6 million and increased EBIT by CHF 1.3 million.

Business combinations

in thousand CHF	Pharma business of Dr. Wild	Lifestage Solutions	Spagyros	Pharmacies	2021 Total	2020 Total
Cash and cash equivalents	–	559	89	1,498	2,146	12,516
Trade receivables	–	1,199	384	1,002	2,584	9,119
Inventories	2,141	1,159	2,594	999	6,893	7,157
Property, plant and equipment	–	153	2,386	2,024	4,563	1,493
Right-of-use assets	–	374	2,391	3,257	6,021	10,325
Intangible assets	24,634	3,632	2,872	–	31,138	21,255
Other current and non-current assets	–	96	87	439	622	2,923
Trade payables	–	–781	–297	–560	–1,638	–5,331
Financial liabilities	–	–56	–1,757	–5,193	–7,005	–1,041
Lease liabilities	–	–374	–2,391	–3,257	–6,021	–10,325
Net deferred tax assets/(liabilities)	12	–193	–371	841	289	–3,043
Employee benefit liabilities	–66	–1,107	–1,107	–	–2,279	–
Other current and non-current liabilities	–	–813	–60	–473	–1,346	–7,806
Fair value of net assets	26,721	3,849	4,821	577	35,968	37,242
Goodwill	7,929	45,404	1,585	9,607	64,525	36,143
Purchase consideration	34,650	49,253	6,406	10,183	100,493	73,386
Cash acquired	–	–559	–89	–1,498	–2,146	–12,516
Fair value of pre-existing relationships	–	–	–170	–	–170	–
Offset against loans / trade receivables	–	–501	–4,251	–	–4,752	–2,500
Contingent consideration	–	–24,000	–	–	–24,000	–
Net cash flow from current business combinations	34,650	24,193	1,895	8,685	69,424	58,369
Payment of consideration due to previous business combinations					70	–
Net cash flow from business combinations					69,494	58,369

Business combinations 2020

Acquisition of pharmacies. Galenica acquired 100% of the interests in pharmacies in various locations in Switzerland. Upon acquisition, the pharmacies were merged with Galenicare Ltd.

The purchase consideration amounted to CHF 42.6 million, of which CHF 40.1 million was settled in cash and CHF 2.5 million was offset against trade receivables. The fair value of the net identifiable assets amounted to CHF 13.5 million at the acquisition date. The goodwill of CHF 29.1 million was allocated to the operating segments Products & Care and corresponded to the added value of the pharmacies based on their locations. Transaction costs were insignificant.

Acquisition of Hedoga AG. On 1 July 2020, Galenica acquired 100% of the shares in the Swiss company Hedoga AG. Hedoga AG is the parent company of the Hedoga Group with its two operating companies Iromedica AG (Swiss based) and Dr. A.&L.Schmidgall GmbH & Co KG (Austria based). The main activity of the Hedoga Group is to market over-the-counter (OTC) medicines, medical devices, food supplements and cosmetics.

The purchase consideration amounted to EUR 28.7 million (CHF 30.7 million) and was fully settled in cash. The fair value of the net identifiable assets amounted to CHF 23.7 million at the acquisition date. The goodwill of CHF 7.0 million was allocated to the operating segment Products & Care and corresponds to the added value based on the acquirer-specific synergies expected to arise from the acquisition in strengthening its leading position in the Swiss consumer healthcare (CHC) market and the know-how of the employees gained. The acquisition also strengthens Verfora's export business in selected markets, particularly in Europe. Acquired intangible assets included trademarks with an indefinite useful life of CHF 20.5 million. Transaction costs of CHF 0.5 million were recognised in other operating costs.

Accounting principles business combinations

Business combinations are accounted for using the acquisition method. Consideration transferred comprises payments in cash as well as the fair value of the assets transferred, the obligations entered into or assumed and the equity instruments transferred. Transaction costs are recognised directly in profit or loss.

Goodwill is recognised at cost at the acquisition date and corresponds to the difference between the consideration transferred and the fair value of assets, liabilities and contingent liabilities identified in the purchase price allocation. Goodwill is capitalised and included in intangible assets, while negative goodwill is recognised immediately in profit or loss. After initial recognition goodwill is recognised at cost less any accumulated impairment.

Contingent consideration is measured at fair value at the acquisition date and not remeasured subsequently for equity instruments. If the contingent consideration qualifies as a financial instrument, it is remeasured to fair value and any difference is recognised in other operating income or other operating costs.

The difference arising from the acquisition of additional non-controlling interests in fully consolidated companies (purchase consideration less proportionate carrying amount of non-controlling interests) is considered to be an equity transaction and is thus taken directly to retained earnings in shareholders' equity. Gains and losses resulting from the disposal of interests in consolidated companies without loss of control are also recognised in retained earnings.

If a cash-generating unit (CGU) or group of CGUs is sold, goodwill is taken into account when calculating the profit or loss on disposal. The profit or loss on deconsolidation is recognised in operating income or other operating costs.