Business Valuation and Appraisals
Valuation and asset appraisal for financial reporting, income tax, investment and risk management purposes.Business Valuation and Appraisals
Mike Weaver, Managing Director and Head of Valuation Advisory EMEA, was published in Accountancy Age with his article, "The Season of Goodwill Impairment".
In this article, Mike discusses the results of the 2018 European Goodwill Impairment Study and what this data represents in terms of economic health in Europe and specifically for the UK.
Mike reminds that amidst Brexit negotiations and in the wake of the euro sovereign debt crisis, the last five years have been turbulent for Europe economically. Economic and financial conditions improved markedly in 2017 with most countries experiencing growth, but the UK continues to be affected by Brexit.
M&A activity divulges the health of the market, explains Mike, and an impairment indicates a negative event – such as economic issues, which can have prolonged effects.
The European Goodwill Impairment Study examined general goodwill impairment trends for companies within the STOXX® Europe 600.The 2018 Study looked at 10 sectors including: consumer staples, financials and real estate, telecommunication services, information technology, materials, industrials, utilities, healthcare, consumer discretionary, and energy. The report also looked at companies in benchmark stock market indices across five countries, including the FTSE 100 in the UK.
“We found that FTSE 100 goodwill impairment dropped 89% in 2017, with UK-listed STOXX® Europe 600 companies recording an 81% fall. Whilst many expected Brexit to have an immediate economic impact, this study shows that we may now just be starting to see its broader effects,” says Mike. Mike shares that initial indicators for 2018 so far show that impairments recorded by UK companies is almost double the total amount of impairments recorded in 2017.
“We are only now starting to see the impact of Brexit, with 2018 M&A data showing a considerable drop. Deal value in the UK fell by 47% in 2018 compared with 2017 (in euro terms), while the number of deals decreased by 22% from the previous year,” says Mike.
He assures that despite uncertainty, the market still has strengths, and many of the firms have global presences, which act as “multinational shields” to mitigate the effects of Brexit.
Turning to the rest of Europe, Mike says that the Eurozone exhibited its best economic year from mid-2016 until the end of 2017. M&A activity in the Eurozone experienced a 10% decline in deal volume and a 70% decline in deal value of closed M&A deals in 2017.
Mike confirms that, “the combination of lower volumes and a strong economic environment has meant that total goodwill impairment recorded by European listed companies in the STOXX® Europe 600 declined by 35%, a reduction for a second consecutive year.”
Read the full article here.