Goodwill impairment in the UK declines by 89 percent
March 8, 2019

The UK saw the largest decline in aggregate goodwill impairment within the STOXX Europe 600 in 2017, reaching its lowest level since the firm began tracking this data in 2010, according to the sixth European Goodwill Impairment (GWI) Study by Duff & Phelps, a global advisor. GWI in the UK fell significantly for FTSE 100 companies, decreasing from EUR 12.4 billion in 2016 to EUR 1.4 billion in 2017 – an 89 percent decrease. A similar drop was recorded for UK companies in the STOXX Europe 600, as GWI fell from EUR 13.7 billion to EUR 2.6 over the same period. 

From an industry perspective, UK industrials companies within both the FTSE 100 and STOXX Europe 600 recorded the largest total amount of GWI, at EUR 434 million and EUR 1.2 billion respectively. This was followed by financials (EUR 389 million) and information technology (EUR 203 million) for FTSE 100 members.

By comparison, UK companies in the STOXX Europe 600 saw consumer discretionary (EUR 496 million) and financials (EUR 393 million) take the second and third spots, respectively. UK financials and UK telecommunication services in both indices showed a remarkable improvement in their 2017 GWI figures over the prior year, although, notably, the 2016 aggregate impairment for telecommunication services was driven by a large single impairment event.

Overall goodwill impairments recorded by companies in the STOXX Europe 600 index decreased by 35 percent, from EUR 28.4 billion in 2016 to EUR 18.5 billion in 2017. This was also the lowest level in aggregate goodwill impairment in Europe since 2010, the onset of the euro sovereign debt crisis.

In contrast to these favourable trends, European M&A activity plummeted in 2017. The eurozone saw a 10 percent decline in deal volume and a 70 percent plunge in deal value (in euro terms) of closed M&A transactions. The broader European Union saw deal value cut in half, with a 7 percent fall in volume.

However, despite ongoing Brexit negotiations and uncertainty, UK M&A remained resilient, recording only a 1 percent drop in deal volume and a 2 percent uptick in deal value. Overall in 2017, EUR 35 billion of goodwill was added to the balance sheets of STOXX Europe 600 companies, with France adding the most.

Mike Weaver, Managing Director and Head of Valuation Advisory, EMEA at Duff & Phelps comments: "Whilst M&A activity plummeted across Europe in 2017, any negative impact on goodwill as a  result of political uncertainty was yet to come through in companies' accounts. 

"Looking at 2018, however, things look like they are beginning to shift. Markets tend to react negatively to periods of prolonged uncertainty, and M&A is no exception. The number and value of deals closed by acquirers listed in the UK dropped significantly compared to the rest of the EU during 2018."

"When it comes to goodwill impairment, however, we'll have to wait a little longer before we can really start to see the true impact, as there is a natural lag before companies report impairments on previous acquisitions. 

"It's important to keep in mind that many of the UK-based companies in the STOXX Europe 600 also have global operations, allowing them to offset some of the risk associated with Brexit. This multinational ‘shield' may create a further lag in the amount of goodwill impairment being recorded.

"Whilst many expected Brexit to have an immediate economic impact in 2017, this study shows that we may now just be starting to see its broader effects. In 2018, of the currently reported STOXX Europe 600 top 15 events, impairment recorded by UK companies is already almost double the total GWI amount recorded in 2017. These early signs suggest that this could be the calm before the Brexit storm."

 





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The UK saw the largest decline in aggregate goodwill impairment within the STOXX Europe 600 in 2017, reaching its lowest level since the firm began tracking this data in 2010, according to the sixth European Goodwill Impairment (GWI) Study by Duff & Phelps, a global advisor. GWI in the UK fell significantly for FTSE 100 companies, decreasing from EUR 12.4 billion in 2016 to EUR 1.4 billion in 2017 – an 89 percent decrease. A similar drop was recorded for UK companies in the STOXX Europe 600, as GWI fell from EUR 13.7 billion to EUR 2.6 over the same period. 

From an industry perspective, UK industrials companies within both the FTSE 100 and STOXX Europe 600 recorded the largest total amount of GWI, at EUR 434 million and EUR 1.2 billion respectively. This was followed by financials (EUR 389 million) and information technology (EUR 203 million) for FTSE 100 members.

By comparison, UK companies in the STOXX Europe 600 saw consumer discretionary (EUR 496 million) and financials (EUR 393 million) take the second and third spots, respectively. UK financials and UK telecommunication services in both indices showed a remarkable improvement in their 2017 GWI figures over the prior year, although, notably, the 2016 aggregate impairment for telecommunication services was driven by a large single impairment event.

Overall goodwill impairments recorded by companies in the STOXX Europe 600 index decreased by 35 percent, from EUR 28.4 billion in 2016 to EUR 18.5 billion in 2017. This was also the lowest level in aggregate goodwill impairment in Europe since 2010, the onset of the euro sovereign debt crisis.

In contrast to these favourable trends, European M&A activity plummeted in 2017. The eurozone saw a 10 percent decline in deal volume and a 70 percent plunge in deal value (in euro terms) of closed M&A transactions. The broader European Union saw deal value cut in half, with a 7 percent fall in volume.

However, despite ongoing Brexit negotiations and uncertainty, UK M&A remained resilient, recording only a 1 percent drop in deal volume and a 2 percent uptick in deal value. Overall in 2017, EUR 35 billion of goodwill was added to the balance sheets of STOXX Europe 600 companies, with France adding the most.

Mike Weaver, Managing Director and Head of Valuation Advisory, EMEA at Duff & Phelps comments: "Whilst M&A activity plummeted across Europe in 2017, any negative impact on goodwill as a  result of political uncertainty was yet to come through in companies' accounts. 

"Looking at 2018, however, things look like they are beginning to shift. Markets tend to react negatively to periods of prolonged uncertainty, and M&A is no exception. The number and value of deals closed by acquirers listed in the UK dropped significantly compared to the rest of the EU during 2018."

"When it comes to goodwill impairment, however, we'll have to wait a little longer before we can really start to see the true impact, as there is a natural lag before companies report impairments on previous acquisitions. 

"It's important to keep in mind that many of the UK-based companies in the STOXX Europe 600 also have global operations, allowing them to offset some of the risk associated with Brexit. This multinational ‘shield' may create a further lag in the amount of goodwill impairment being recorded.

"Whilst many expected Brexit to have an immediate economic impact in 2017, this study shows that we may now just be starting to see its broader effects. In 2018, of the currently reported STOXX Europe 600 top 15 events, impairment recorded by UK companies is already almost double the total GWI amount recorded in 2017. These early signs suggest that this could be the calm before the Brexit storm."

 



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