15. Business combinations

General

Alongside TMF Group's strategies for organic growth, it is TMF Group's intention, where appropriate, to continue to make acquisitions that provide additional scale to the business, enhance a specific service offering, assist in consolidating fragmented markets or address relevant geographical gaps. TMF Group applies a disciplined and rigorous approach to all acquisition evaluations.

TMF Group determines that it has acquired a business when the acquired set of activities and assets include an input and a substantive process that together significantly contribute to the ability to create outputs. The acquired process is considered substantive if it is critical to the ability to continue producing outputs, and the inputs acquired include an organised workforce with the necessary skills, knowledge, or experience to perform that process or it significantly contributes to the ability to continue producing outputs and is considered unique or scarce or cannot be replaced without significant cost, effort, or delay in the ability to continue producing outputs.

With an effective date of 31 March 2023, Tucano Bidco B.V. (“Tucano” or “Acquirer”) acquired 100% of the shares and voting rights in TMF Sapphire Topco B.V. (“TMF Group” or “Company” or “Target”), therefore acquiring control. Total number of issued shares was 1,775,833,402. The fair value consideration of €1,732 million was determined based on the total net asset value €488.7 million adjusted for net debt position of €1,204.4 million and net non-operating assets of €38.9 million as at the valuation date. There is no deferred consideration and no contingent liabilities. 

The assets and liabilities arising from the acquisitions are as follows:

Non-controlling interest

TMF Group has 60% controlling interest (“NCI”) in Freeway Entertainment Group, the remaining 40% interest is held by the management and this is accounted for as NCI. The carrying value of NCI of €14.4 million acquired in business combination, approximates the fair value.

Leases

TMF Group measured the acquired lease liabilities using the present value of the remaining lease payments at the date of acquisition. The right-of-use assets were measured at an amount equal to the lease liabilities and adjusted to reflect the favourable terms of the lease relative to market terms.

Intangible assets

Key separate intangibles, namely, Goodwill, Customer lists, Brand name and Software are recognised as a result of acquisition. The goodwill of €715.7 million comprises the value of expected synergies arising from the acquisition. Goodwill is allocated to the three CGUs, EMEA, Americas and APAC. The goodwill is  not tax deductible. The fair value of customer lists of €299 million is calculated using multi-period excess earnings method (“MEEM”). MEEM method calculates the net cash flows based on a detailed forecast of cash inflows and cash outflows that in general are derived from projected financial information. Intangible assets are deemed to only generate cash flows in combination with other tangible or intangible assets, so-called contributory assets, notional payments for the contributory assets are taken into consideration for the determination of the relevant cash flows. Customer lists are recognised with a useful life of 15 years. 

The charges for the economic returns are computed on the basis of the assets utilised by the intangible asset. The resulting net cash flows are also termed multi period excess earnings. The fair value of the brand name of €373 million is calculated using the Relief-from-Royalty (“RFR”) method which reflects the savings realised by owning the brand or a royalty free license and was applied for the valuation. Industry relevant factors and bench-marking analysis indicated a royalty rate of 5% which was used for the valuation of the brand name. Brand name is recognised with indefinite useful life. The fair value adjustment of €13 million for software is determined using the RFR method. Acquisition related intangible assets and deferred tax are calculated as follows:

The impact on cash flows as a result of the acquisition is as follows:

Acquisition of subsidiary, net of cash acquired is €1,677.1 million, determined based on total consideration transferred of €1,732 million excluding cash of €54.9 million.

Acquisition of TMF Sapphire Topco B.V. contributed to €623.5 million consolidated revenue and €68.1 million consolidated operating result.

Acquisitions 2023

For the financial statements disclosure, acquisitions below are not considered material for TMF Group, both individually and in the aggregate.

 Ireland - On 1 October 2023, TMF Group acquired full interest 100% in Goodbody Fund Management Limited (“Goodbody”), an Ireland based real estate focused third party management company. Consideration at completion amounted €4.5 million. No contingent liabilities were acquired in this business combination. The business is expected to contribute to annualised revenue and TMF Group expects synergies in terms of client portfolio and using one global platform.

India - On 19 July 2023, TMF Group acquired full interest 100% in KPK faServ India Private Limited (“KPK”), an Indian provider of corporate services. Consideration at completion amounted €7.9 million. No contingent liabilities were acquired in this business combination. The business is expected to contribute to annualised revenue and TMF Group expects synergies in terms of client portfolio and using one global platform.

Malta - On 1 December 2023, TMF Group acquired full interest 100% in AVANZIA TAXAND LIMITED (“Avanzia”), a Maltese provider of tax administration, cosec, domiciliation, accounting and directorship services. Consideration at completion amounted €2.8 million. No contingent liabilities were acquired in this business combination. The business is expected to contribute to annualised revenue and TMF Group expects synergies in terms of client portfolio and using one global platform.

Greece - On 31 October 2023, TMF Group acquired full interest 100% in Premier Consulting Société Anonyme Provision of Advisory Services (“Premier”), a Greek provider of accounting, tax and payroll services. Consideration at completion amounted €2.8 million. No contingent liabilities were acquired in this business combination. The business is expected to contribute to annualised revenue and TMF Group expects synergies in terms of client portfolio and using one global platform.

Romania - On 4 December 2023, TMF Group acquired full interest 100% in CONTEXPERT CONSULTING SRL (“Contexpert”), a Romania-based provider of accounting, tax administration and payroll services. Consideration at completion amounted €6.0 million. No contingent liabilities were acquired in this business combination. The business is expected to contribute to annualised revenue and TMF Group expects synergies in terms of client portfolio and using one global platform.

TMF Group's consolidated revenue for 2023 includes €12.4 million related to acquisitions completed in 2023 as from the effective date. The full year impact calculated as where these acquired per 1 April 2023 would have been €27.1 million. The acquisitions contributed for €3.5 million to the operating result of 2023 and with a full year impact of €6.9 million.

 Upon acquisition of the business during 2023, TMF Group recognised aggregated goodwill of €13.3 million and other intangible assets such as client list and software of €15 million. Acquisition of subsidiaries, net of cash acquired is €38.3 million.