Duff & Phelps Publishes Fifth Annual European Goodwill Impairment Study

-- 2016 goodwill impairment for UK companies within the STOXX® Europe 600 Index doubled from 2015, while total goodwill impairment recorded by firms across the index declined by 24% -- 

-- Telecommunication Services was the top UK industry with the largest aggregate goodwill impairment at €5.1bn, followed by Financials & Real Estate at €3.8bn --

-- Energy sector goodwill impairment within the STOXX® Europe 600 Index declined by 70% in 2016 and by 61% in the UK, reflecting a recovery in oil prices during the year--

Duff & Phelps, the premier global valuation and corporate finance advisor, today announced the results of its fifth annual European Goodwill Impairment Study

Goodwill impairments among UK companies in the STOXX® Europe 600 Index increased twofold, from €7.7bn in 2015 to €13.7bn in 2016. This marks the highest level in three years for these companies, placing the UK on top as the country with the largest goodwill impairment amount recorded in 2016. The study also tracked levels of goodwill impairment across the FTSE 100 index and found that 21% of its constituents recorded goodwill impairments, doubling from €5.8bn in 2015 to €12.4bn in 2016. However, the largest UK impairment event in 2016 accounted for 37% of the country’s total impairment amount and 41% of the FTSE 100 aggregate goodwill impairment.

Total goodwill impairment recorded by European listed companies in the STOXX® Europe 600 declined by 24%, from €37 billion in 2015 to €28 billion in 2016, reflecting an improved outlook for the global economy, despite some lingering economic uncertainty. According to the study, a combined €24.8bn, or approximately 88% of the overall goodwill impairment, was recorded by STOXX® Europe 600 companies based in three of the EU countries analyzed – the UK, France, and Germany. By comparison, approximately €22.6bn of impairment in aggregate was recognized by FTSE 100, CAC 40, and DAX 30 index members. 

Michael Weaver, Managing Director at Duff & Phelps, commented, "2016 was a significant year for both the UK and European economy, as industry waited for the reverberations of the Brexit vote. Though many predicted a decline in mergers and acquisitions, the UK actually performed well and remained a hotspot for international investment, as buyers took advantage of the weakening pound and largely stable economy.” 

He added that “Despite this robust M&A activity, UK companies continue to see a lot of impairments, and the UK was the European country within the STOXX® Europe 600 index with the highest aggregate amount of goodwill impairment in 2016 (€13.7bn). Goodwill impairments were principally concentrated in the telecommunications, financials and consumer discretionary industries. The top impairment event in the UK accounted for almost 40% of this total amount but, even removing this event, the aggregate impairment would still have risen by 31%. The overall impairment trend highlights the need for companies to undertake comprehensive valuations prior to making acquisitions.” 

Across the STOXX® Europe 600 and various benchmark country indices, levels of goodwill impairment by European companies were also measured across ten industries. Within the STOXX® Europe 600 index, eight out of ten industries saw an increase in companies that carry goodwill in 2016, reflecting a strong year for M&A. In particular, consumer staples saw the biggest gain with 100% of companies carrying goodwill, an increase of 13.6% from 2015. 

Other study highlights include:

  • Within the STOXX® Europe 600 index, Telecommunication Services saw the largest rise in terms of proportion of companies that recorded a goodwill impairment, reaching the top of the industry list at 40%. Utilities was second, with 30.8% of Utility companies recognizing goodwill impairments, while Financials & Real Estate took the third spot at 26.4%.  Overall, Energy industry firms registered the largest decline (25.1%) in 2016 in the percentage of companies that recorded a goodwill impairment.
  • The largest goodwill impairment event in 2016 took place in the UK in the Telecommunication Services industry. This impairment event of €5.1bn contributed to Telecommunications Services being the industry with the highest goodwill impairment amount for both the UK companies within the STOXX® Europe 600 and the FTSE 100 index. UK companies in the Financials & Real Estate industry, as well as in Consumer Discretionary were also significantly impacted by goodwill impairments.
  • UK Energy firms within the STOXX® Europe 600 saw a 61% decline in goodwill impairments in 2016, following a recovery in oil prices during the year from a 12-year low.  By comparison, the group of Energy companies within the STOXX® Europe 600 saw goodwill impairment decrease by 70% in 2016.

Michael Weaver concluded, “The data on goodwill impairment shows that 2016 was a tough year for telecommunications, but a much-improved one for the energy industry. Sector dynamics clearly have an impact on the levels of impairment, as one or two big deals can also have a huge impact on the overall numbers. Past performance is no guarantee of the future – so CFOs really do need to ensure they’re dynamically and proactively valuing acquired assets.” 

 About Duff & Phelps

Duff & Phelps is the premier global valuation and corporate finance advisor with expertise in complex valuation, disputes and investigations, M&A, real estate, restructuring, 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.co.uk.

M&A advisory, 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 Duff & Phelps Securities, LLC. M&A advisory and capital raising services in Canada are provided by Duff & Phelps Securities Canada Ltd., a registered Exempt Market Dealer. M&A advisory, capital raising and secondary market advisory services in the United Kingdom and across Europe are provided by Duff & Phelps Securities Ltd. (DPSL), which is authorized and regulated by the Financial Conduct Authority. In Germany M&A advisory and capital raising services are also provided by Duff & Phelps GmbH, which is a Tied Agent of DPSL. Valuation Advisory Services in India are provided by Duff & Phelps India Private Limited under a category 1 merchant banker license issued by the Securities and Exchange Board of India.

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