Summary of prior year acquisition
On 26 February 2021, the Company acquired 100 per cent of the share capital of DAM Structures Limited ('DAM Structures'), an innovative steel fabrication company. The board believe that the acquisition will give the Group immediate access to attractive, complimentary market sectors with strong growth potential including the propping, railway and steel piling market sectors.
The final net consideration of £22.9m comprised:
| Provisional
£000 | Movement
£000 | Final
£000 |
| Gross initial cash consideration | 16,994 | – | 16,994 |
| Completion payment | 934 | (408) | 526 |
| Contingent consideration | 3,709 | 268 | 3,977 |
| Deferred consideration | 6,930 | – | 6,930 |
| Gross consideration | 28,567 | (140) | 28,427 |
| Net cash acquired (excluding payments in advance) | (5,521) | – | (5,521) |
| Net consideration | 23,046 | (140) | 22,906 |
DAM Structures was acquired for an initial gross consideration of £16,994,000, including cash and cash equivalents of £5,521,000, which was funded by a combination of Group cash reserves and a new term loan.
In addition, a maximum deferred consideration of £7,000,000 is payable in cash in p 2023. An additional performance-based contingent consideration is also in place which could further increase the purchase price by up to £8,000,000, if certain work-winning targets in the railway and steel piling sectors are achieved over a five-year period, ending in April 2026.
Following the finalisation of the acquisition accounting for DAM Structures in 2022, the completion payment was agreed at £526,000, which has been paid in cash during the year, and the fair value of the contingent consideration has increased from the provisional stage to £3,977,000. This represents management's current assessment of the amount likely to be paid of £6,565,000 (out of the maximum £8,000,000), discounted at DAM Structures's cost of capital of 18.5 per cent.
The fair value of the assets and liabilities recognised as a result of the acquisition are as follows:
| Provisional
£000 | Movement
£000 | Final
£000 |
| Non-current assets | | | |
| Property, plant and equipment | 1,990 | – | 1,990 |
| Current assets | | | |
| Inventories | 2,235 | – | 2,235 |
| Contract assets, trade and other receivables | 10,141 | (1,121) | 9,020 |
| Cash and cash equivalents (excluding payments in advance) | 5,521 | – | 5,521 |
| 17,897 | (1,121) | 16,776 |
| Total assets | 19,887 | (1,121) | 18,766 |
| Current liabilities | | | |
| Trade and other payables | (9,973) | (493) | (10,466) |
| Current tax liabilities | (86) | (40) | (126) |
| (10,059) | (533) | (10,592) |
| Non-current liabilities | | | |
| Deferred tax liabilities | (1,079) | (850) | (1,929) |
| Total liabilities | (11,138) | (1,383) | (12,521) |
| | | | |
| Net assets | 8,749 | (2,504) | 6,245 |
| Net cash acquired (excluding payments in advance) | (5,521) | – | (5,521) |
| Net identifiable assets acquired | 3,228 | (2,504) | 724 |
| Identified intangible assets | 4,750 | 5,958 | 10,708 |
| Goodwill | 15,068 | (3,594) | 11,474 |
| Net assets acquired | 23,046 | (140) | 22,906 |
The finalisation of the acquisition accounting for DAM Structures resulted in an amount of £3,594,000 being reclassified from goodwill to intangible assets during the year. This reflects additional identified intangible assets on acquisition of £5,958,000, offset by fair value adjustments of £1,514,000 and related deferred tax liabilities of £850,000. The fair value adjustments relate to adjustments to contract balances, updated using the best estimates available, which are based on conditions existing at the date of acquisition. Due to the proximity of the acquisition to the previous year-end date, the valuation of these assets was not finalised until the year ended 26 March 2022.
Goodwill of £11,474,000 represents both existing and new end user customers (including core fabrication and rail), which were not recognised separately in accordance with IFRS 3 (Revised) 'Business Combinations', the ability and skill of DAM's employees and management, know-how, and the quality of the services provided (none of which qualify for recognition as a separate intangible asset under IFRS 3). The goodwill arising from the acquisition is not expected to be deductible for income tax purposes.
Analysis of amounts disclosed in the cash flow statement in connection with the acquisition:
| 2022
£000 | 2021
£000 |
| Gross initial cash consideration | – | 16,994 |
| Completion payment | 526 | – |
| Net cash acquired (including payments in advance) | – | (5,505) |
| Total cash outflow – investing activities | 526 | 11,489 |
| Contingent consideration – Harry Peers | – | 6,000 |
| Net initial cash consideration | 526 | 17,489 |
Acquisition-related costs of £689,000 were fully expensed in the period to 27 March 2021 as non-underlying operating costs (see note 5).