Duff & Phelps, the premier global valuation and corporate finance advisor, today announced the release of its 2016 U.S. Goodwill Impairment Study. This marks the eighth consecutive year that Duff & Phelps has prepared and issued a comprehensive Goodwill Impairment Study in partnership with the Financial Executives Research Foundation (FERF).
The 2016 Study examined general and industry goodwill impairment (GWI) trends through December 2015 for over 8,500 U.S. publicly-traded companies, and reported results from an annual survey of Financial Executive International (FEI) members, representing both privately-owned and publicly-traded companies.
Key highlights from the 2016 Study include:
•U.S. publicly-traded companies recorded $57 billion in goodwill impairment in 2015 – more than double the impairment recorded during the prior year.
•This record goodwill impairment, since the height of the global financial crisis, occurred despite a robust year for M&A activity, with deal value increasing by two-thirds relative to 2014 and U.S. companies adding $458 billion of goodwill to their balance sheets.
•Notwithstanding this overall increase in the aggregate amount of goodwill impairments, the actual number of impairment events increased only slightly, from 341 in 2014 to 350 in 2015. As a result, the average GWI per event more than doubled to $163 million in 2015; however, the top three GWI events in 2015 continued to account for 20% of the aggregate GWI amount.
•From an industry perspective, highlights include:
◦For the second year in a row, Energy was the hardest-hit industry with GWI of $18.2 billion in 2015, compared to $5.8 billion in the prior year. Energy accounted for nearly one-third of the aggregate GWI in 2015, with 56% of Energy companies that carry goodwill on their balance sheets recording an impairment.
◦Information Technology was also significantly impacted in 2015, as two of the three overall largest impairments took place in this industry and total GWI more than tripled to $12.9 billion compared to 2014.
◦Consumer Discretionary and Industrials also saw steep increases in 2015, more than doubling impairment levels of the prior year.
◦Other key industries, including Financials and Consumer Staples reported impairment declines of 55% and 29%, respectively.
Highlights from the annual survey of FEI members include:
•Among publicly-traded company respondents, a record 59% adopted the optional qualitative goodwill impairment test (“Step 0”) in 2015, while two-thirds of survey respondents overall believe that Step 0 meets its stated objective of reducing costs.
•On the backdrop of a FASB proposal to simplify the current goodwill impairment test model by eliminating “Step 2”, a significant portion of survey respondents (82%) were in favor of the proposed change.
“The 2016 U.S. Goodwill Impairment Study offers unique insight into the interplay between macroeconomic and industry trends,” said Greg Franceschi, Duff & Phelps managing director and co-chairman of the AICPA Goodwill Impairment Task Force. “For example, overall strength in the job market and consumer spending contributed to an active M&A environment and a marked increase in recorded goodwill. At the same time, ongoing weakness in energy prices and a few significant impairment events in the tech sector contributed to $57 billion of impairments in 2015 – a twofold increase over the prior year. Looking ahead, goodwill resulting from acquisitions will continue to be an important metric to monitor.”
Duff & Phelps companion study focusing on goodwill impairment in the European market will be released in the coming weeks. For more information on Duff & Phelps Goodwill Impairment Studies and financial reporting valuation capabilities, please visit www.duffandphelps.com/GWIstudies.
About Duff & Phelps
Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, M&A, restructuring, dispute and legal management consulting and compliance and regulatory consulting. The firm’s more than 2,000 employees serve a diverse range of clients from offices around the world. For more information, visit www.duffandphelps.com.
M&A, capital raising and secondary market advisory services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. Pagemill Partners is a Division of kroll Securities, LLC. M&A and capital raising services are provided in a number of European countries through Duff & Phelps Securities Ltd, UK, which includes branches in Ireland and Germany.
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