This year, US public companies are expected to write down more goodwill than last year as they deal with the financial fallout from the Russian war in Ukraine and persistently high inflation.
Businesses report goodwill on their balance sheet when they buy a business for more than the value of its net assets. The acquiring company must assess the fair value of its reporting units annually. If this figure is less than the amount on the books, the company writes down the value of the goodwill.
According to Kroll LLC, a risk consulting firm formerly known as Duff & Phelps LLC.
That figure is a fraction of the total in 2020, when write-downs hit a record $142.5 billion as the value of assets held by businesses fell in the first year of the Covid-19 pandemic.
Writedowns this year are likely to exceed those of 2021 as companies face greater economic uncertainty stemming from higher inflation and the impact of Russia’s invasion of Ukraine on financial markets and chains. supply, said Carla Nunes, chief executive of Kroll.
“The US economy is still stable and the fundamentals are still good,” Ms. Nunes said. “They’re just not as good as they were in 2021.”
Companies that sell their Russian stakes could face significant write-downs of assets, including goodwill. However, since many U.S. companies have built their Russian operations from scratch rather than through acquisitions, the number of goodwill writedowns related to Russian investments is likely to be somewhat limited, Ms. Nunes said.
Further writedowns could stem from companies’ exposure to Europe in general as the region’s economic outlook darkens as the conflict continues, she said.
Since 2008, there have been 11 acquisitions by US public companies of Russian minority businesses, assets or stakes valued at a total of $1.75 billion, including one transaction – the financial services company Freedom Holding Body
2020 acquisition of Russian securities brokerage firm IC Zerich Capital Management JSC – since 2015, according to Kroll data.
The 2021 figure was the smallest since 2006, when goodwill write-downs totaled $6.1 billion, although the pool of companies surveyed, at around 5,000, is smaller than today. Kroll, which in 2013 added more than 3,000 companies to its annual study, tracked more than 8,900 companies for its latest study.
Some of the biggest writedowns of the year by companies, including healthcare services firm Cardinal Health Inc.,
insurer Prudential Financial Inc.
and copier manufacturer Xerox Holdings Corp.
were low by the standards of previous years.
Xerox recorded a charge of $781 million due to pandemic-related impacts on its printing business. The Norwalk, Conn.-based company tests for writedowns every October and doesn’t expect another charge this year, chief financial officer Xavier Heiss said. “We are seeing steady to slight growth in the printing business,” Mr. Heiss said.
Cardinal Health took a charge of $1.3 billion as rising commodity and transportation costs weighed on earnings. Prudential said it took a charge of $1.06 billion due to weaker-than-expected revenue growth for its Assurance IQ business, which it acquired for $2.35 billion in 2019, and a fall in the value of its industry peers.
The biggest writedown in 2020 by comparison was oil services company Baker Hughes Co.
The $14.77 billion impairment related to its oilfield services and equipment business.
European goodwill impairments recorded in 2021 by companies in the Stoxx Europe 600 index totaled €18 billion, or $19.98 billion. That’s down 66.7% from a year earlier, according to Kroll data as of Monday.
The pandemic, inflationary pressure and supply chain disruption are likely to continue to play a large role in corporate goodwill writedowns, whether in the United States, Europe or elsewhere, said Feng Gu, a professor. in accounting from the State University of New York at Buffalo. “In this environment, everyone is affected,” Gu said.
Write to Mark Maurer at [email protected]
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