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) Stud by Duff & Phelps, the global advisor that protects, restores and maximises value for clients. GWI in the UK fell significantly for FTSE 100 companies, decreasing from €12.4 bn in 2016 to €1.4bn in 2017 – an 89% decrease. A similar drop was recorded for UK companies in the STOXX® Europe 600, as GWI fell from €13.7bn to €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 €434m and €1.2bn respectively. This was followed by Financials (€389m) and Information Technology (€203m) for FTSE 100 members. By comparison, UK companies in the STOXX® Europe 600 saw Consumer Discretionary (€496m) and Financials (€393m) 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%, from €28.4 bn in 2016 to €18.5 bn 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% decline in deal volume and a 70% 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% fall in volume. However, despite ongoing Brexit negotiations and uncertainty, UK M&A remained resilient, recording only a 1% drop in deal volume and a 2% uptick in deal value. Overall in 2017, €35 bn 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 droplped 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.”