ACQUISITION
6 May 2016 By PDSNETThis is when one company acquires more than 50% of the shares of another or obtains a controlling interest in its shares. The company acquiring the shares then becomes the "holding company" and the acquired company becomes a "subsidiary". Once a company acquires another company, it is required by the Companies Act (71 of 2008) to consolidate that company's financial statements to produce group financial statements. In practice, most companies listed on the JSE are "groups" consisting of many different related businesses. A company can grow either organically or by way of acquisition. Growing by acquisition is far quicker, but carries the risk that the acquired company may not be a good fit with the parent company. The JSE rules require that if a listed company makes an acquisition which has a value of 30% of its market capitalisation or more, then the value of the purchase must be disclosed. Some companies, like Hudaco, have developed the art of constantly making "bolt-on" acquisitions of companies which are relatively small and which have good synergies with their existing business. In its results for the six months to 31st May 2024, published on 27th June 2024, Hudaco said the following of its bolt-on acqusition of Plasti-Weld, "On 1 December 2023, the group acquired the operations of Plasti-Weld. The final consideration will be determined in February 2025 with a maximum of R56 million, which includes an initial payment of R43 million made in December 2023. Amounts recognised on acquisition include plant and equipment of R1 million, inventories of R10 million, trade and other receivables of R4 million, bank balance of R1 million, trade and other payables of R3 million, deferred tax liabilities of R7 million, intangible assets of R26 million and goodwill of R18 million. These values approximate the fair values as provisionally determined under IFRS 3. The factors making up the goodwill include: significant potential market synergies through accessing the branch network and customer base of Hudaco’s Astore Keymak business; leveraging the Astore Keymak infrastructure to achieve cost reductions; a skilled workforce with product knowledge; and technical expertise that does not qualify for separate recognition as an intangible asset."
Share this glossary term: