SoftwareONE Annual Report 2019

3 Change in the scope of consolidation

Acquisitions in 2019

On 31 January 2019, SoftwareONE Holding AG acquired 100% of COMPAREX AG, Germany (“COMPAREX”). As a global IT company with thirty years of experience, COMPAREX is one of the world’s leading IT service providers in the EMEA markets. COMPAREX develops services that support management and leverage software products. COMPAREX serves corporate customers spanning from small businesses to large international corporations as well as public institutions – supporting customers during their digital journey towards productivity optimization.

On 19 November 2019, the Group acquired 100% of BNW Consulting Pty Ltd., Australia (“BNW”) with a subsidiary in the US. BNW is a long-standing and growing technology and cloud consulting company specializing in services around SAP platform transformation and migration from on-premises to public cloud hyperscale platforms such as Microsoft Azure, Amazon Web Services (AWS), Google Cloud Platform and Ali Cloud. In addition, BNW offers organizations its proprietary SAP-certified tool “PowerConnect” that provides analytical insights into SAP performance data across on-premise & cloud infrastructures as well as security and business process data.

Furthermore, the Group made the following other acquisitions in 2019:

On 30 April 2019, the Group acquired 100% of RightCloud Pte. Ltd., Singapore (“RightCloud”). RightCloud is a market-leading cloud-based service provider delivering cloud solutions and an overall digital transformation to enterprises. RightCloud specializes in Amazon Web Services, creating multi-cloud strategy, managed services, cloud security, big data, business analytics, DevOps, application development and SAP on Cloud.

On 31 October 2019, the Group acquired all customer contracts and the workforce of MassiveR&D K.K., Japan (“MassiveR&D”) by way of an asset deal. MassiveR&D is a Tokyo-based Amazon Web Services (AWS) specialist. This acquisition adds AWS managed and professional services to SoftwareONE’s local offering in Japan.

The fair values of the identifiable assets and liabilities as at the date of acquisition were:

in CHF 1,000	COMPAREX	BNW	Others	Total

Cash and cash equivalents	110,965	1,532	167	112,664
Trade receivables	558,227	941	134	559,302
Other short term assets	63,503	75	9	63,587
Indemnification assets	12,446	–	–	12,446
Tangible assets	17,816	18	–	17,834
Intangibles (excluding goodwill)	78,304	3,840	–	82,144
Right-of-use assets	25,392	–	–	25,392
Deferred tax assets	6,226	90	–	6,316
Other non-current assets	16,513	–	–	16,513

Total assets	889,392	6,496	310	896,198

Trade payables	533,701	54	218	533,973
Other short term liabilities	80,773	978	72	81,823
Accrued expenses and contract liabilities	57,992	426	20	58,438
Defined benefit obligations	5,429	–	–	5,429
Provisions	4,134	–	–	4,134
Contingent liabilities	14,689	–	–	14,689
Contingent consideration liabilities	6,610	–	–	6,610
Non-current financial liabilities	143,234	–	–	143,234
Deferred tax liabilities	26,001	1,389	–	27,390

Net assets acquired at fair value	16,829	3,649	–	20,478

Details of the purchase considerations recognized at acquisition and the derivation of goodwill are as follows:

in CHF 1,000	COMPAREX	BNW	Others	Total

Cash paid	54,463	7,965	278	62,706
Settled in SoftwareONE Holding Shares (out of treasury shares) 1)	–	1,673	117	1,790
Contingent consideration liabilities	34,209	–	186	34,395
Fair value of 2,315,289 newly issued SoftwareONE Holding shares (after split: 23,152,890 shares)	265,000	–	–	265,000

Total purchase consideration	353,672	9,638	581	363,891
Less net assets acquired at fair value	16,829	3,649	–	20,478

Goodwill	336,843	5,989	581	343,413

1) For the purchase consideration settled in SoftwareONE Holding shares, 92,947 shares were used for the acquisition of BNW and 6,452 shares for MassiveR&D

Analysis of the cash flows on acquisitions:

in CHF 1,000	COMPAREX	BNW	Others	Total

Cash consideration	54,463	7,965	278	62,706
Net cash acquired	110,965	1,532	167	112,664

Net inflow of cash – investing activities	56,502	–6,433	–111	49,958

Acquisition of COMPAREX

The Group finalized the purchase accounting in the second half of 2019 and recognized the changes retrospectively as of the acquisition date. The fair value of trade receivables amounts to TCHF 558,227. The gross amount of trade receivables is TCHF 563,185 of which TCHF 4,958 is expected to be uncollectible. The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of COMPAREX with those of the Group. The goodwill is not deductible for income tax purposes.

For the purpose of the purchase price allocation, the fair value of the newly issued ordinary shares was determined by way of an EBITDA multiple, based on a comparable group of companies, and other factors, at the date of acquisition. This resulted in a fair value of CHF 114.46 per share (after split: CHF 11.45 per share), totaling TCHF 265,000. There were no significant transaction costs related to the capital increase.

As part of the purchase agreement, a contingent consideration arrangement (maximum amount TEUR 30,000) was agreed that would result in an additional cash payment to the previous owners of COMPAREX and be payable in the event of an exit event. The EBITDA multiple reached upon such an exit event determines the amount of the payout to be made. At the time of acquisition, the Group assessed the estimated timing and result of such an exit event and determined that the fair value of the contingent consideration liability amounted to TCHF 34,209, ie the maximum amount. As a result of the IPO in October 2019 the contingent consideration was fixed and an amount of TCHF 32,601 was paid in January 2020.

Most of the transaction costs were incurred prior to 2019. In total, transaction costs of TCHF 8,905 have been expensed. Of these TCHF 1,386 are reflected in the period to 31 December 2019 in other operating expenses (prior period: TCHF 4,667).

From the date of acquisition COMPAREX has contributed TCHF 3,090,361 of revenue and TCHF 88,096 to the profit for the year.

Acquisition of BNW

The goodwill recognized is primarily attributed to the expected synergies and other benefits from combining the assets and activities of BNW with those of the Group. The goodwill is not deductible for income tax purposes.

As part of the purchase agreement, a contingent consideration arrangement was agreed that could result in additional cash payments to the previous owners of BNW. The amount of the payments depends on EBITDA development for 2021 and 2023 and a multiplier derived from other variables. The payments are contingent on continued employment and thus compensation for future service. They will therefore be accreted as personnel expenses during the period of service.

There were no significant transaction costs related to this acquisition.

From the date of acquisition BNW has contributed TCHF 257 of revenue and TCHF 74 to the profit for the year.

Other acquisitions

The purchase price allocations for RightCloud, MassiveR&D and BNW are still provisional as at 31 December 2019. For details regarding contingent consideration arrangements, refer to Note 19.

If all acquisitions would have taken place at the beginning of the year total revenue of SoftwareONE Group would have been TCHF 7,866,346 and net profit for the period would have been TCHF 130,723 (on a pro forma basis).

Acquisitions in 2018

On 3 October 2018, the Group acquired 100% of the shares of ISI Expert SAS, a managed services and infrastructure provider based in France. During the business year, the Group finalized the purchase accounting and there were no changes in the final fair values of acquired assets and liabilities compared to the provisional amounts disclosed in the Annual Report 2018.

Acquisition of non-controlling interests

On 29 August 2019, SoftwareONE Switzerland AG acquired the remaining 50% ownership interest of SoftwareONE LATAM Holding SL located in Spain with subsidiaries in Mexico, Columbia, Dominican Republic, Ecuador and Peru. These interests were subject to a put option (to be settled in a variable number of SoftwareONE Holding AG shares) for which a financial liability had been recognized (refer to Note 20) at the present value of the redemption amount. The related non-controlling interest was derecognized at each reporting date as if the put option had been exercised, with any difference between the put option liability and the carrying amount of non-controlling interest recognized in shareholders’ equity. The consideration for the 50% ownership interests was fully paid in cash (TCHF 7,967).