22Acquisitions

Logipard AB

On 16 December 2008, the Group purchased the entire share capital of Logipard AB (Logipard), a video IP company incorporated in Sweden for total consideration of £5.6 million, comprising £5.5 million cash consideration and £0.1 million of related acquisition expenses. This purchase has been accounted for as an acquisition.

Logipard develops power-efficient video encode and decode acceleration technologies for the mobile and consumer markets and enables ARM to bring to market the ARM® Mali™-VE multi standard video engine family of products. The acquisition adds world class video and imaging technology to the ARM portfolio, making ARM the only IP provider with the in-depth experience and understanding required to meet the market need for an entire range of system elements, from memory controllers, interconnect, application and embedded processors to graphics processors, video engines, physical IP and embedded firmware. For the reasons given above, combined with the ability to hire the entire workforce of Logipard and synergistic benefits that may arise, the Group paid a premium on the Logipard acquisition, giving rise to goodwill.

From the date of acquisition to 31 December 2008, the acquisition contributed under £0.1 million to revenue, and incurred a loss of under £0.1 million before interest and tax. Had the acquisition occurred at the beginning of 2008, it would not have made a material difference to the Group’s results. The acquisition did not make a material contribution to the Group’s post-acquisition net operating cash flows, tax paid or capital expenditure.

All intangible assets were recognised at their respective fair values. The residual excess over the net assets acquired is recognised as goodwill in the financial statements.

At 31 December 2008, the accounting for the Logipard acquisition was determined on a provisional basis because the fair values assigned to the acquiree’s identifiable assets and liabilities were only provisional. Any adjustments to these provisional values as a result of completing work on the fair values of assets and liabilities acquired will be recognised within 12 months of the acquisition date and will be recognised as if they had occurred as at the date of acquisition.

Acquisitions

	Carrying value pre-acquisition £000	Provisional fair value £000
Cash and cash equivalents	16	16
Receivables and other debtors	556	556
Property, plant and equipment	121	121
Other intangible assets	153	4,977
Payables	(289)	(289)
Deferred revenue	(450)	(450)
Deferred tax liability	–	(1,394)
Net assets acquired	107	3,537
Goodwill		2,074
Consideration		5,611

Consideration satisfied by:

Consideration satisfied by

	£000
Cash consideration paid	5,514
Expenses	97
	5,611

The outflow of cash and cash equivalents on the acquisition of Logipard is calculated as follows:

The outflow of cash and cash equivalents on the acquisition of Logipard

	£000
Cash consideration paid	5,514
Expenses paid	97
Cash acquired	(16)
Net cash outflow	5,595

The intangible assets acquired as part of the acquisition of Logipard can be analysed as follows:

The intangible assets acquired as part of the acquisition of Logipard

	£000
In-process research and development	130
Developed technology	3,163
Customer relationships	1,684
Total	4,977

The methods and significant assumptions involved in valuing these identifiable intangible assets are described below:

In-process research and development In-process research and development of £0.1 million reflects certain research projects, that had not yet reached technological feasibility and commercial viability. The fair value assigned to in-process research and development was estimated using the discounted cash flow method with a post-tax discount rate of approximately 61%.

Developed technology Developed technology of £3.2 million comprises internally-developed technologies. At the date of acquisition, developed technologies were complete and had reached technological feasibility. Any costs incurred in the future will relate to ongoing maintenance of the technologies and will be expensed as incurred. To estimate the fair value of the internally-developed technologies, a discounted cash flow method, specifically the income approach, was used with a post-tax discount rate of 45%. Developed technologies are being amortised over an estimated useful life of five years.

Customer relationships The customer base of £1.7 million represented the fair value of existing customer contracts. To estimate their fair value, a discounted cash flow method, specifically the income approach, was used with reference to the terms of the contracts and management’s estimates of the revenue which will be generated from the customer relationships. The valuation was considered in conjunction with an asset purchase made by the Group of similar contracts with the same customers at the same time as the acquisition. A post-tax discount rate of 40% was used for the valuation. Customer relationships are being amortised over an estimated useful life of five years.

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