4. Business combinations

In 2010, the Group completed a number of acquisitions. The most significant acquisitions relate to Cinterion Wireless Modules Group (Cinterion) and Netsize Group (Netsize) as detailed below. These acquisitions have been accounted for under the acquisition method as prescribed by IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended). They have been included in the Company’s consolidated financial statements since the date of their acquisition.

Cinterion

On July 28, 2010, Gemalto acquired Cinterion, the leading provider of industrial Machine-to-Machine (M2M) wireless communication modules. Cinterion, which uses a fabless business model, employs 335 staff with major centers in Munich and Berlin, Germany. The business was started by Siemens in 1995 and spun out to a financial sponsor consortium in 2008.

Building on the investments made in the last twenty years by mobile network operators worldwide that provide wireless data coverage in almost every part of the world, wireless M2M applications are increasingly revolutionizing businesses by enabling simple and cost-effective connectivity for a variety of applications. These include, among others, remote monitoring of utility meters or patients at home, tracking of high-value items or stolen vehicles and optimized real-time management of fleets, smart energy grids for more efficient energy consumption and air pollution detection systems for urban reduction programs in CO2 emissions. Combining Cinterion’s M2M module technology with Gemalto’s expertise in deploying software and services for mobile network operators will provide M2M solutions with proven security and demonstrated remote ‘Over-the-Air’ management of devices for industrial companies, for administrations and for mobile network operators which are increasingly seeking to offer M2M communication services.

Netsize

On January 4, 2010, Gemalto, which already held a 24.12% interest in Netsize, subscribed to a capital contribution increasing its stake to 85.65%. Netsize offers mobile payment solutions based on operator billing (through premium SMS, MMS and WAP for example) for 100 mobile operators in 28 countries, reaching over one billion billable subscribers worldwide, and provides mobile messaging, with SMS and MMS delivery to over 200 countries.

Gemalto and Netsize minority shareholders have the option to force the purchase/sale of the remaining 14.35% non-controlling interests in Netsize respectively. As a result, Gemalto has already considered 100% of control and interest in Netsize against a €4.9 million liability. The acquisition of 61.53% gave rise to a €18.1 million goodwill and the acquisition of the remaining 14.35% is shown as a €6.4 million decrease in share premium.

Other acquisitions

In 2010, the Group completed various other acquisitions which were less material either individually or in aggregate. The total purchase consideration transferred and the total goodwill arising from these acquisitions amounted to €77 million and €68 million, respectively.

From the date of acquisition, Cinterion has contributed €80 million and €2 million to the Group’s revenue and net profit, respectively. Netsize has contributed €61 million and €(4) million to the Group’s revenue and net profit, respectively. The other acquisitions have contributed €17 million and €(3) million to the Group’s revenue and net profit, respectively.

If the acquisitions had occurred on January 1, 2010, management estimates that revenue from Cinterion would have been €176 million and net profit €0 million. The management also estimates the other acquisitions would have contributed €21 million and €4 million respectively.

Intangible assets identified as part of the purchase price allocation

In most instances, Gemalto management, assisted by independent qualified experts, provisionally identified and allocated the combination value to the assets acquired and liabilities and contingent liabilities assumed, including those not previously recognized by the acquiree. The tax effect on the fair value of the intangible assets recognized amounted to €8.4 million.

The following table summarizes the estimated fair values of the intangible assets acquired and their remaining useful life at the date of the acquisitions:

  Cinterion Netsize Other acquisitions
In millions of Euro Fair value Remaining
useful life
Fair value Remaining
useful life
Fair value Remaining
useful life
Existing technologies 21.1 From 1 year
to 5 years
6.2 13 years 7.5 From 2 years
to 9 years
Capitalized development costs 8.7 7 years(1)
Customer relationships 13.1 6 years 3.2 From 7 years
to 9 years
Backlogs 3.8 5 months
Brand names 7.5 Indefinite 0.6 Indefinite 0.4 From 2 years
to 4 years

Identifiable assets and liabilities at the date of acquisition

The effects of these acquisitions on the Group’s assets and liabilities as of the respective acquisition dates are 
described below:

In thousands of Euro Cinterion Netsize Other acquisitions
Assets      
Property, plant and equipment, net 3,812 753 296
Intangible assets, net 57,165 7,183 11,085
Deferred income tax assets 178 211 2,564
Other non-current assets 234 289 255
Inventories, net 4,786 206
Trade and other receivables, net 26,527 42,489 5,200
Cash and cash equivalents 8,592 14,201 4,102
Total assets 101,294 65,126 23,708
       
Liabilities      
Borrowings (non-current) 188 2,047
Deferred income tax liabilities 6,732 207 2,564
Employee benefit obligations 3,208 146
Provisions and other liabilities 
(non-current) 15 8,348 407
Trade and other payables 40,772 59,868 8,267
Current income tax liabilities 117 103
Borrowings (current) 5,263 214
Derivative financial instruments (current) 4,732
Provisions and other liabilities (current) 2,214 1,632 924
Total liabilities 57,790 75,755 14,423
       
Fair value of identifiable net assets 43,504 (10,629) 9,285
       
Purchase consideration 163,000 9,000 77,020(1)
Non-controlling interests, based on their proportionate interest in the recognized amounts of the asset and liabilities of the acquiree (1,525)
       
Goodwill 119,496 18,104 67,735

Goodwill, which amounted to €205.3 million represented the complementary technological expertise, the skills and know-how of the workforce acquired and the synergies expected to be achieved through the integration of our acquisitions.

Analysis of cash flows on acquisitions

  Cinterion Netsize Other acquisitions
Purchase consideration settled in cash 163,000 9,000 50,220
Net cash acquired (8,592) (14,201) (4,102)
Net cash flow on acquisitions 154,408 (5,201) 46,118