Goodwill counts for nearly half of deal value, says E&Y
Ernst & Young says companies are exposed to the risk of impairment charges
Almost half of the value in M&A deals is made up of goodwill, a report by
Ernst & Young has found.
Transaction values of 709 companies across 21 countries were surveyed in the
report. Clearly identified intangible assets, such as brands and patents,
represented on average 23% of enterprise value. Meanwhile, 47% of enterprise
value of the average company was ascribed to goodwill.
With companies forced to revalue assets in response to changing market
conditions under fair value, having so much goodwill as a proportion of
enterprise value could expose acquired companies to unpleasant asset write-downs
and impairment charges, the report says.
Of the sectors surveyed, the consumer products sector had the highest average
level of goodwill, at 65% of enterprise value. The technology sector was close
behind, with goodwill comprising 60% of enterprise value on average.