In a recent Bloomberg article, co-CEO and Senior Managing Director PJ Patel discussed 2020’s largest goodwill impairments—an estimated $145 billion—on corporate balance sheets; the largest value slashes since the 2008 financial crisis. The news comes at a time when the FASB continues its debate about this non-cash asset, contemplating if companies should be allowed to amortize over time.
The broader economic turmoil of covid has eclipsed and minimized writedown news, “There are times in this environment—covid, the Great Recession—where goodwill impairments happen and nobody blinks an eye,” says Patel. The article includes the top 10 impairments of 2020, with energy giants Baker Hughes in the lead with a $14.8 billion charge, Marathon Petroleum not far behind with a $7.4 billion loss, and retailer Macy’s and entertainment and media enterprise Walt Disney both making the list and both with $3.1 billion writedowns. Companies in these sectors with such losses in the face of stay-at-home orders and consequential diminished demand for fuel, pants, and family destination travel don’t come as a surprise to the market. In the case of Macy’s Patel notes, “by the time the retailer held its earnings call, no analyst asked any question about why the goodwill charge dinged the company’s earnings so drastically. It made sense in 2020 for a retailer heavily reliant on foot traffic.”
Conversely, writedown news does count in the early years post-acquisition or merger. “If a company announces by year three or for that it has to impair the value of its goodwill, that sends a signal that the deal isn’t going as planned,” Patel said.
Bloomberg subscribers can read more in the article here: Pandemic Goodwill Writedowns Resonate in Accounting Rules Debate
VRC welcomes you to contact us with your questions or input about the current state of goodwill and impairment, and financial reporting needs for your company’s M&A activity.