Company acquisitions

LB(Swiss) Investment AG

As at 3 April 2018, LLB acquired 100 per cent of LB(Swiss) Investment AG (LB(Swiss)). The acquisition was made within the scope of a share deal with the previous sole owner, the Frankfurter Bankgesellschaft (Switzerland) AG. LB(Swiss) offers efficient, made-to-measure investment fund management, compliance and risk management services.

With this acquisition LLB accomplishes its planned strategic market entry in Switzerland. The expertise of LB(Swiss) makes it possible for the LLB Group to offer classical investment fund services (51 funds with a gross fund volume of CHF 4.7 billion as at 31 March 2018), to act as representatives for foreign funds and to provide consulting services in the fields of compliance and risk management. LB(Swiss) was renamed “LLB Swiss Investment AG” and shall continue to operate in Switzerland as an independent company.

The purchase price for LB(Swiss) amounted to CHF 32.9 million as at 3 April 2018. This sum includes an earn-out obligation totalling CHF 1.9 million as well as a deferred purchase price payment of CHF 6.1 million due on 3 October 2019.

The purchase price is composed of a cash payment on the acquisition date and a final payment on the earn-out closing date, 18 months after the completion date. The final payment includes a deferred purchase price payment resulting from the provisional goodwill compensation (30 % of the provisional goodwill compensation as at 3 April 2018) and earn-out components. The scope of the earn-out components depends on the development of assets under administration up to the earn-out closing date.

The individual factors comprising the measured goodwill include, in particular, the employees taken over, the available know-how, the strategic market entry in Switzerland and the growth associated with this, as well as synergy effects. On the earnings side, significant synergy effects will result from a more robust growth of investment fund volume. Goodwill and amortisation of goodwill are not tax deductible.

The LLB Group regards the individual company as the smallest cash generating unit. 30 per cent of the goodwill is allocated to LLB AG and 70 per cent to LLB Swiss Investment AG.

The costs relating to the acquisition amounting to CHF 0.4 million were recognised directly in the income statement under general and administrative expenses.

Measurement methods and input factors relating to the market value measurement of intangible assets, as well as sensitivity of input factors

The intangible assets were measured using the following methods and input factors:

• Client relationships: Measured using the multi-period excess earnings method. Sensitive input factors are the planned cash flows, the shrinkage rate with existing clients and the discount rate.
• Software: Measured using the cost approach. The sensitive input factor is the number of work days required to replicate the software.
• FINMA concession: Measured using the cost approach. Sensitive input factors are the duration of the application procedure and the scope of the underlying cost components.

The ”Goodwill and other intangible assets” position encompasses the fair values of client relationships (CHF 13.6 million), software (CHF 1.9 million) and FINMA concession (CHF 0.3 million).

Since 3 April 2018, LLB Swiss Investment AG has contributed CHF 6.0 million to total operating income as at 31 December 2018 and CHF 1.6 million to Group net profit. If the merger had occurred on 1 January 2018, LLB Swiss Investment would have contributed CHF 6.9 million to total operating income and CHF 2.2 million to Group net profit.

Semper Constantia Privatbank AG

As at 4 July 2018, LLB acquired 100 per cent of Semper Constantia Privatbank AG (Semper Constantia) with its registered office in Vienna. The acquisition was made within the scope of a share deal with the shareholders, the Haselsteiner Familien-Privatstiftung, grosso Holding Gesellschaft mbH and the former management of Semper Constantia. Semper Constantia is a private bank focusing on asset management and advisory services, custodian bank and investment fund business, as well as real estate. Its target markets are the DACH region, Liechtenstein, Italy and Central and Eastern Europe.

The acquisition of Semper Constantia enables the LLB Group to significantly expand its asset management business in Austria, and to establish Austria as its third strong domestic market. With its strong position in private banking and institutional business and its excellent reputation, Semper Constantia represents an ideal opportunity for the LLB Group to expand its activities in Austria. On 30 September 2018, Semper Constantia merged with LLB Österreich to become Liechtensteinische Landesbank (Österreich) AG. This created the largest and leading asset management bank in Austria with combined client assets of EUR 20 billion. The merged company now becomes one of the top providers of private banking and institutional business in Austria.

The purchase price for Semper Constantia on 4 July 2018 amounted to CHF 223.0 million. This contained an earn-out commitment amounting to CHF 49.0 million due on 30 June 2019.

Loans to clients having a contractual nominal value of CHF 218.3 million with a market value of CHF 216.0 million were taken over. In determining the market value, it was taken into consideration that loans totalling CHF 2.3 million could probably not be recovered.

The valuation of assets and liabilities has not yet been completed. It is based on preliminary information and measurements, and is therefore reported only on a provisional basis.

In accordance with the transaction agreement, LLB will transfer a cash payment and 1.85 million shares of LLB AG to the sellers. The cash funds and LLB shares were to be measured at market value at the time point of the acquisition. In addition, the transaction agreement envisages an earn-out clause (assets under management multiple). The definitive purchase price will be determined on 30 June 2019 on the basis of the assets under management at this time point. Up to this date, the second variable purchase price is not known and must be estimated within the scope of the initial recognition of the acquisition and recognised as conditional purchase price payment as a liability in LLB’s balance sheet. Any possible adjustments between the acquisition date and the definitive payment of the second variable purchase price are to be recognised in the income statement.

The individual factors, which constitute the measured goodwill, comprise, in particular, the employees taken over, the available know-how, the establishment of Austria as the third strong domestic market, as well as the growth associated with this, and the synergy effects. Significant synergy effects should result on the earnings side from stronger growth in the business volume. Goodwill and amortisation of goodwill are not tax deductible.

The LLB Group regards the individual company as the smallest cash generating unit. 60 per cent of the goodwill will be allocated to LLB AG and 40 per cent to LLB (Österreich) AG.

The costs relating to the acquisition amounting to CHF 14.4 million were recognised directly in the income statement under general and administrative expenses.

Measurement measures and input factors relating to the market value measurement of intangible assets, as well as sensitivity of input factors

The intangible assets were measured using the following methods and input factors:

• Client relationships: Measured using the multi-period excess earnings method. Sensitive input factors are the planned cash flows, the shrinkage rate with existing clients and the discount rate.
• Software: Measured using the cost approach.
• FMA concession: Measured using the cost approach. Sensitive input factors are the duration of the application procedure and the scope of the underlying cost components.

The “Goodwill and intangible assets” position encompasses the fair value of client relationships (CHF 69.3 million), the FMA concession (CHF 0.8 million) and software (CHF 1.1 million).

Since 4 July 2018, Semper Constantia has contributed CHF 26.3 million to total operating income and a loss of CHF 4.8 million to Group net profit. If the merger had occurred on 1 January 2018, Semper Constantia would have contributed CHF 53.5 million to total operating income and a loss of CHF 2.0 million to Group net profit.