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The European Goodwill Impairment Study examined general goodwill impairment trends for companies within the STOXX® Europe 600 across 10 sectors which provides insight into the success or otherwise of corporate M&A activity. The study also looked at companies in benchmark stock market indices across five countries, including the FTSE 100 in the UK.
On a whole, Mike reassures that global economic and financial conditions showed a distinct improvement from mid-2016 until the end of 2017. The eurozone actually exhibited its best economic year.
However, Mike goes on, “European M&A activity plummeted in 2017. While many expected Brexit to have an immediate economic impact, this study shows that we may now just be starting to see its broader effects... impairment recorded by UK companies is already almost double the total goodwill impairment amount recorded in 2017.”
In 2018, Mike notes that things are shifting: Compared to the rest of the EU, the number and value of deals closed by acquirers listed in the UK decreased significantly, suggesting that the uncertainty surrounding Brexit adds stress to goodwill impairment tests for companies with more business exposure to the UK.
“We are only now starting to see the impact of Brexit, with 2018 M&A data showing a considerable drop. Deal value in the UK fell by 47% in 2018 compared with 2017 (in euro terms), while the number of deals decreased by 22% from the previous year,” says Mike.
But despite widespread European decline in M&A activity, the UK proves fairly resilient.
While uncertainty prevails, Mike ascerns that the market still has strengths – one such benefit being that many UK financial services firms have a global presence. These “multinational shields” mitigate the effects of Brexit, but may further delay the amount of goodwill impairment recorded in these firms.
Read the full interview here.