Houlihan Lokey’s inaugural European Goodwill Impairment Study analyzes acquisition histories and goodwill impairment charges recorded by the 600 largest, listed European companies which comprise the Dow Jones STOXX 600 Index between 2005 and the first half of 2009. We analyzed and compared goodwill write-downs, the development of book value of equity, market capitalization and the purchase price paid for acquisitions by companies across several major industries. The study indicates that the recent market-wide decline in market capitalization, a result of the global financial crisis, appears to have not been reflected by companies in their financial reporting.

A key feature of the study is the development of the Impairment Risk Factor (IRF), a “weather forecast” indicating the outlook (Sunny, Cloudy, Rainy or Stormy) for potential impairment charges across each industry analyzed.

The study’s key findings include:

• Between 2005 and 2007, acquisitions totalled EUR 1.2 trillion, yet, only EUR 85 billion of goodwill was written-down between 2008 and June 2009, leaving the potential for further write-downs of goodwill acquired in these transactions.

• The financial crisis may not be fully reflected in the balance sheets of Dow Jones STOXX 600 companies. Impairments of goodwill booked in 2008 and the first half of 2009 are in line with those booked in 2005, 2006 and 2007.

• At the end of June 2009, the book value of equity significantly exceeds the market capitalization for approximately 20% of companies analyzed indicating the potential need for an impairment of assets.

• While no overall industries were determined to have an IRF of Stormy, Healthcare was the only industry which could be classified as Sunny. The outlook for all other industries was either Cloudy or Rainy, but within each industry, there were companies which had a Stormy forecast.

To download your complimentary copy of The European Goodwill Impairment Study, please click here.