Page 18 - SONEPAR 2021 - AcquisitionBook

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2.3.8 MAIN IMPACT OF ACQUISITIONS ON CONSOLIDATED ACCOUNTS
PHASE 2: EXPLORATORY PHASE
Prepare a BUSINESS CASE and an ACQUISITION SHEET
The accounting of an acquisition may have different consequences on the country and GROUP P&L and should be considered before striking a deal.
➜ PPA: For acquired companies in the core business of SONEPAR with sales exceeding €50 million, part of the acquisition GOODWILL will be allocated into customers relationship and distribution network and will be booked into the acquired company’s balance sheet. The customers relationship amount will be depreciated linearly over 5 years or longer for large acquisitions. Any acquisition outside the core business should be treated under a specific PPA to be agreed upon with the GROUP. This depreciation will negatively impact the future EBIT of the acquired company;
➜ EARN OUT: The potential EARN OUT paid to shareholders must be estimated at the date of acquisition. When reevaluated or paid on subsequent periods, the difference between final and estimated amount is booked via P&L (in EBIT).
2.3.9 RISKASSESSMENT
A risk assessment must be performed and summarized in the BUSINESS CASE. It shall focus on the following aspects:
➜ Finance and tax:
• performance reliability and sustainability,
• risks on balance sheet items,
• potential hidden liabilities,
• unofficial ledgers/“black books”,
• finance, accounting and tax information system,
• tax compliance and tax governance;
➜ Legal, risk management and compliance:
• claims/litigation threatened or pending,
• identification of main legal issues,
• target’s CODE OF CONDUCT and compliance program,
• potential compliance issues,
• impact of disinvestment,
• insurance policies,
• transfer of contracts,
• transfer of assets,
• potential Natural Catastrophe exposure,
• intellectual property protection,
• quorum required for key decisions in the SHA;
➜ Management and HR:
• motivation,
• skills and expertise,
• continuity,
• turnover,
• adaptation to future organization after acquisition,
• compensation packages, pensions plan, fringe benefits, and any related off-balance sheet items;
In some cases, the EARN OUT can be defined in the scope of IAS 19 as a bonus paid to the management when the sellers are still employed by the acquiree, and as such registered as an expense in the EBIT during the employment period and not as part of the purchase price;
➜ IFRS-16: Accounts normally used for the valuation of the acquisition are excluding IFRS-16. In the opening balance sheet for the consolidation accounts an analysis of the IFRS-16 impact should be realized using the Easy-Lease tool including the net debt impact;
➜ Acquisitions costs: They cannot be considered as part of the price and must be booked as expenses.
For more detailed information, please refer to the Consolidation Manual (available on Switch SharePoint: 00 - Finance Manual 2020. pdf (sharepoint.com)).
Relevant information must be reported in the Consolidation acquisition sheet (also available on Switch SharePoint) and will be audited by SONEPAR’s Statutory Auditors.
➜ Operations:
• customers overlap/concentration,
• suppliers’ conflict,
• turnover losses due to change of control,
• non-core activities,
• branches overlap,
• product family overweight,
• digital disruption (new pure players, disintermediation, etc.);
➜ Logistics & Digital:
• capacity reserve,
• integration difficulty level,
• cybersecurity status,
• ICT system support;
➜ Others:
• integration capacity of the local SONEPAR management
team,
• review of potential alternatives to the proposed transaction and target.
16 SONEPAR - ACQUISITION MANUAL - 2021 - FOR INTERNAL USE ONLY
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