New York – Total goodwill impairment (GWI) recorded by U.S. public companies reached $78.9 billion in 2018, climbing a staggering 125% from the previous year, according to the 2019 U.S. Goodwill Impairment Study (2019 Study) released today by Duff & Phelps, the global advisor that protects, restores and maximizes value for clients. The 11th edition of the study examines general and industry goodwill impairment trends of more than 8,800 U.S. publicly traded companies through December 2018.
M&A activity saw record numbers in 2018, with a 16% increase in deal volume and a 57% uptick in deal value, surpassing the prior peak levels of 2015. This led to the highest level of goodwill ($386 billion) added to U.S. companies’ balance sheets since Duff & Phelps first study in 2008. While $22.1 billion of the $78.9 billion in GWI in 2018 was attributed to the General Electric (GE) impairment, the total GWI still increased 62% from 2017 to 2018, excluding GE. This is almost triple the 23% increase in GWI between 2016 and 2017.
Other key highlights from the 2019 Study include:
- The top 10 impairment events in 2018 accounted for nearly 70% of the aggregate impairment amount for the year.
- Seven out of 10 industries analyzed saw their aggregate GWI amounts increase for the second consecutive year.
- The industrials sector was hit the hardest in 2018, with an aggregate GWI of $25.1 billion, the majority of which ($22.1 billion) was from GE alone. Healthcare, consumer staples and energy followed as the top three industries with the largest increases in goodwill impairment.
- The energy sector, which previously felt relief in 2017 after three consecutive years as the most affected industry, found its improvement cut short as a result of oil prices collapsing in late 2018.
“We saw a significant increase in the aggregate impairment amount for 2018, the majority of which was generated from a few large impairment events related principally to transactions which closed in the prior three years,” said Greg Franceschi, Managing Director and Global Leader of the Financial Reporting Valuation practice at Duff & Phelps. “Despite this record amount of impairment in 2018, the largest events of 2019 to date are an early indication that we may actually see a significant decrease in overall goodwill impairment this year.”
The 2019 Study is being released at the same time the Financial Accounting Standards Board (FASB) is exploring whether to change the accounting for identifiable intangible assets and goodwill. In July 2019, the FASB issued an Invitation to Comment on Identifiable Intangible Assets and Subsequent Accounting for Goodwill to explore whether cost-effective solutions that maintain or improve decision usefulness are feasible. The FASB is in the process of reviewing comment letters received and has solicited feedback through roundtables to provide input into the board’s deliberations on these topics.
The 2019 Study takes an expanded look at the top 30 goodwill impairments recorded by companies in 2018, highlighting factors noted in their SEC filings that contributed to the impairment. Should the FASB decide to change the accounting for goodwill impairment, such analysis might not be possible in the future, thus limiting the decision useful information available to investors.
Visit www.duffandphelps.com/GWIStudies to download the 2019 Study as well as those for prior years.
About Duff & Phelps
Duff & Phelps is the global advisor that protects, restores and maximizes value for clients in the areas of valuation, corporate finance, investigations, disputes, cyber security, compliance and regulatory matters, and other governance-related issues. We work with clients across diverse sectors, mitigating risk to assets, operations and people. With Kroll, a division of Duff & Phelps since 2018, our firm has nearly 3,500 professionals in 28 countries around the world. For more information, visit www.duffandphelps.com.
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