Goodwill Impairment Trends and the Impact of COVID-19

Goodwill impairment trends are of interest to many as we continue on in the midst of the COVID-19 pandemic.  Arriving on the scene is the Duff & Phelps 2020 U.S. Goodwill Impairment Study, which was released in February 2021.  In its 12^th year of publication, Duff & Phelps analyzed 8,896 publicly traded companies incorporated in the U.S. through December 2019 and also provided a glimpse into how public company goodwill impairment is shaping up in 2020.

According to the 2020 U.S. Goodwill Impairment Study (“the Study”), total goodwill impairment has decreased from $78.9 billion in 2018 to $71.0 billion in 2019. However, 2018 goodwill impairment includes a $22.1 billion impairment reported by a single company, General Electric, which accounts for roughly 28% of the 2018 total goodwill impairment.  Excluding this outlier from the 2018 total, goodwill impairment would have risen 25% in 2019.   

Of the nearly 8,900 publicly traded U.S. companies included in the study, nearly one-third of the companies had goodwill.  Of those companies, nearly 12% recorded goodwill impairment in 2019.  The percent of goodwill impaired was approximately 1.8% of total goodwill recorded.  Goodwill impairment in 2019 was the second highest annual impairment level in the study since the 2008 financial crisis.  For seven out of 10 industries evaluated, 2019 goodwill impairment was greater than or equal to the previous year.   Communication services, information technology and consumer staples were the industries that experienced the largest increase in goodwill impairment in 2019. 

In 2020, it is unsurprising that goodwill impairment appears to be on the rise.  Based on the data available as of January 28, 2021, the top ten goodwill impairments of 2020 added up to $54 billion compared to the top ten goodwill impairments of 2019, which totaled $37 billion—a 46% increase.  Although the total goodwill impairment in public companies’ 2020 calendar year-end results are not known yet, initial reporting indicates goodwill impairment has already topped $120 billion.  In comparison, the Duff & Phelps study measured goodwill impairment at $188 billion in 2008 during the financial crisis at the time.  The Study notes that if the 2020 total goodwill impairment remains less than the goodwill impairment recorded during 2008, “it will be partly a reflection of the unprecedented level of support provided by both the Federal Reserve (with swift implementation of liquidity-enhancing monetary policies) and the U.S. government (with large fiscal stimulus packages) in response to the COVID-19 crisis.”  Based on the information currently available, the energy industry has been the most impacted industry in 2020 as a result of the global collapse in oil prices resulting from the pandemic.

As COVID-19 continues to evolve, both public and private companies must assess the impact of the pandemic on their operations and the value of their assets, including goodwill. Please contact Jen Doering at 412-697-5275 or [email protected] of the Schneider Downs Business Advisory Group to further discuss how we can assist you with your goodwill analysis needs.