6.2 Business combinations

Van Wanrooij

On 5 September 2023, the Group acquired 100% of the share capital in the company Van Wanrooij Bouwontwikkeling B.V. that was incorporated for the purpose of the transaction. This company directly holds 100% of the shares in Van Wanrooij Projectontwikkeling B.V., Van Wanrooij Commandiet B.V., Van Wanrooij Grondbank B.V., Van Wanrooij Bouwbedrijf B.V., Bouwmaterialenhandel Bevers B.V. and Van Wanrooij Timmerfabriek B.V. (hereafter: Van Wanrooij). Van Wanrooij is a successful family business in development and construction, primarily of houses. With this transaction, the Group strengthens its market position in the construction and property development sector in the Netherlands. The strategic rationale behind the transaction is an immediate improvement in the mix (more houses) and size of its work in hand (the number of homes to be developed in the future rises by approximately 14,000 homes).

In connection with the acquisition, a purchase price allocation (PPA) must be carried out in accordance with IFRS, in which the total transaction sum must be allocated to the acquired assets and liabilities. These are recognised at market value (fair value accounting) and the difference between the price paid and the net asset value of the assets and liabilities at market value is recognised as goodwill. The transaction amount for 100% of the shares totals € 296.8 million, which was paid in the form of 2.3 million shares with a combined transaction price of € 23.5 million and a cash payment of € 273.4 million. As permitted under IFRS 3 'Business Combinations', the fair value of the identifiable assets and liabilities acquired has been presented on a provisional basis.. An independent professional expert performed the preliminary fair value determination

Details of the purchase price, net assets acquired and goodwill are as follows:

Approximately 200 individual positions were valued to determine the market value of the total inventory of development positions. A position may consist of expenses and income booked under inventories, deposits (if payments have been made for land holdings for which ownership has not yet been obtained), work in progress, and possibly other liabilities (if properties have been transferred but Projectontwikkeling will still incur costs in the future). These balance sheet items combined, with a book value of € 117 million as of 5 September 2023, resulted in a market value of the positions of € 259 million. Consequently, the inventory position has been subjected to a total fair value step-up of € 142 million, divided between co-consolidated positions and non-consolidated positions (joint ventures). The table below specifies how this amount is made up of both on-balance sheet and off-balance sheet items. The fair value adjustment of the joint ventures of € 14 million, presented at net asset value, is after allocation of the deferred tax liability in the joint ventures. The gross amount plus the fair value adjustment of inventory adds up to € 142 million.

The fair value adjustment of provisions pertains to certain risks related to development positions obtained in the period prior to the transaction date. For a more detailed explanation, see note 6.24 other provisions.

The accounting for the acquisition of Van Wanrooij and the detailed allocation of the acquisition price to the separate assets and liabilities, are based on an assessment of their fair value on the basis of the assumptions applicable as at 5 September 2023 (acquisition date). In a limited number of aspects, the market values assigned to the assets and liabilities were provisional. This was due to the limited time between acquisition date and date of preparation of the financial statements. In this case, IFRS offers the possibility of examining and possibly adjusting the assumptions used within one year after the acquisition date. A possible revision may affect subsequent positions and will be finalised in the 2024 reporting year.

The market values of two items have been adjusted as part of the PPA process. Firstly, Van Wanrooij Bouw's order book has been valued based on the replacement cost method. The assigned value of € 6.4 million will be amortised on a straight-line basis within one year from the acquisition date. No other intangible assets have been identified, other than the order book and goodwill. Secondly, the inventory position has been subjected to a fair value step-up to market value. As part of the PPA, all positions have been valued separately, partly based on external appraisals. Van Wanrooij has land holdings with a potential to realise approximately 14,000 homes. Measured by the total number of homes that Van Wanrooij develops per year, this means it has a development inventory of approximately 15 years. The inventory position therefore includes positions in various stages: land under construction, land for sale, building developments and more strategic land (often still with a current use as agricultural land). Positions may include ownership, building claims and development rights. As is customary in property development, in many cases Van Wanrooij works with down payments and subsequent payments. These subsequent payments are off-balance sheet liabilities and in most cases are conditionally linked to a definitive zoning change.

The inventory positions were acquired over a longer period (partly in times when house prices were considerably lower than at the time of acquisition) and Van Wanrooij makes an above-average return per home within the sector. When determining the market value, this resulted in a significant fair value step-up of € 142 million (partly in non-consolidated joint ventures) compared to the carrying value of the inventory to a total of € 259 million. This fair value step up of the inventory position means that a higher acquisition price should be taken into account for accounting purposes from the acquisition date. In other words, the future gross profit (EBITDA) potential will be € 142 million lower as a result of the fair value step-up. The impact of this on Van Wanrooij's future profitability is high in the first few years and decreases as time goes on. There are several reasons for this. 1) In the first years after the acquisition, (almost) all home conveyances to buyers (which is the basis for revenue recognition in property development) will come from the acquired inventory position. 2) The positions that will lead to land conveyances in the first few years are (almost all) subject to full permits and partly already sold. The cash flow profile is therefore already largely fixed. Due to this lower risk profile, they have been assigned a lower discount factor for valuation purposes. 3) The combination of a higher discount factor and a longer lead time results in a lower net present value for positions that will be developed further into the future.

Van Wanrooij's total development inventory of about 14,000 homes consists of approximately 200 (sub-)projects, which have been subject to separate valuations. The fair value step-up should be at position level in accordance with IFRS and will be reflected in the statement of profit or loss in the future, as properties in the projects are transferred to buyers. While the total carrying value of the portfolio has more than doubled as a result of the fair value step-up to market value, there are significant deviations at individual position level, ranging from limited downward adjustments to significant upward adjustments. As a result, the ultimate fair value step-up may differ significantly per project, depending on when and which projects are transferred. The 431 homes that were transferred between 5 September 2023 and 31 December 2023 together resulted in a fair value step-up of € 11.3 million, or over € 26,000 per home. This € 11.3 million will be charged to the underlying EBITDA of € 31 million that Van Wanrooij would have reported before the application of the PPA. 

For 2024, Heijmans expects a fair value step-up of € 20,000 to € 26,000 per transferred home, which as explained above will gradually decline to zero in subsequent years after the last home from the existing inventory position has been transferred to a buyer. Percentage-wise, the fair value step-up will therefore have an impact of approximately 33% on Van Wanrooij’s gross profit in 2024, and this percentage will decline somewhat each year in subsequent years. In the first year after the acquisition (including four months in 2023 and eight months in 2024), Heijmans will recognise the impact of the write-down of Bouw's order book (€ 6.4 million), as well as the allocation of a one-off retention arrangement with staff amounting to a maximum of € 7 million, as an extraordinary expenses .

As the fair value step-up of the inventory position, as well as the identification of Bouw’s order book in the balance sheet, do not take place for tax purposes, a deferred tax liability appears in Van Wanrooij’s opening balance sheet. The total deferred tax liability amounts to € 38 million, this being the nominal rate of 25.8% multiplied by the value of Bouw’s order book and the total fair value step-up of the development position. € 5 million of this amount is formed at the level of joint ventures valued at net asset value, so this part is not visible in the balance sheet.

The goodwill of € 90.8 million is ultimately the difference between the acquisition price and the fair value of the identifiable assets and liabilities acquired at the time of acquisition. Heijmans will not amortise the goodwill in the future. However, the company will have to perform an annual test to determine whether there is still sufficient earning potential in respect of the goodwill. This test takes place at the level of Van Wanrooij (the cash-generating unit), which will continue independently within Heijmans. The goodwill is due to the fact that the Group expects a stable profit potential, from both the construction-related activities (Bouw, Bevers and de Timmerfabriek) and project development activities (Projectontwikkeling). Goodwill is not deductible for tax purposes.

Acquired receivables

Unless fair value adjustments have been made, the carrying amounts of assets acquired are generally considered to be equal to their fair values. The fair value of acquired trade and other receivables is € 20.7 million, which is equal to the contracted amount.

Revenue and profits

Van Wanrooij's financial results have been consolidated from the acquisition date, this being 5 September 2023. For the period from the acquisition date to 31 December 2023, Van Wanrooij's operations contributed revenue of € 124.7 million to the Group, together with underlying EBITDA of € 20 million and a result after tax of € 9.5 million. Given the high number of land transfers in the last months of the year (431 net, which was more than half the number of transfers in the year), this amount is not representative of the whole of 2023. The amounts have been calculated based on the subsidiary's results and adjusted for differences in accounting policies and exclude the effects of fair value adjustments. The amortisation of Bouw’s order book and the impact of the fair value step-up of the land valuations had a negative impact of € 9.9 million on this result after tax.

If the acquisition had been completed on the first day of the financial year, the Group's revenue and profit before tax would have been € 2.3 billion and € 94 million, respectively. For the Heijmans part, these amounts have been calculated in accordance with IFRS standards, while for the Van Wanrooij part they have been calculated in accordance with financial reporting standards accepted in the Netherlands and they have not been adjusted for the differences in accounting policies. No conversion has taken place for this period, because this proved to be impracticable, as the complexity and effort required for such a conversion are significant. This is mainly due to the fact that it is not possible to accurately determine the impact of retrospectively applying alternative conversion policies.

Transaction costs

In 2023, the Group incurred total transaction costs of € 9 million due to the acquisition (€ 12 million including the retention bonus). This amount consists of consultancy costs related to the due diligence process, the closing process (including NMA approval) and transfer tax resulting from the transaction. These costs have been recognised directly in the statement of profit or loss in the period when these costs were incurred. In addition, Heijmans awarded a staff retention bonus of € 7 million, one-third of which has been recognised in the 2023 statement of profit or loss, while the remainder will be recognised in 2024.