Pandemic Effects on Goodwill Impairment
The COVID-19 pandemic has drastically impacted the macroeconomic environment. As equity markets have crashed and a recession looms, it’s important for CFOs and Controllers to stay ahead of the changing landscape. For companies that have been acquisitive and carry significant goodwill (or other intangible assets) on their books, it may be time to assess the need to perform an interim goodwill impairment test.
As noted in Account Standards Update (ASU) 350, goodwill of a reporting unit should be tested between annual tests “if an event occurs, or circumstances change, that would more likely than not reduce the fair value of a reporting unit below its carrying amount”. Examples of such events and circumstances from ASU 350 include the following:
- Macroeconomic conditions such as a deterioration in general economic conditions, limitations on accessing capital, fluctuations in foreign exchange rates, or other developments in equity and credit markets
- Industry and market considerations such as a deterioration in the environment in which an entity operates, an increased competitive environment, a decline in market-dependent multiples or metrics (consider in both absolute terms and relative to peers), a change in the market for an entity’s products or services, or a regulatory or political development
- Cost factors such as increases in raw materials, labor, or other costs that have a negative effect on earnings and cash flows
- Overall financial performance such as negative or declining cash flows or a decline in actual or planned revenue or earnings compared with actual and projected results of relevant prior periods
- Other relevant entity-specific events such as changes in management, key personnel, strategy, or customers; contemplation of bankruptcy; or litigation
- Events affecting a reporting unit such as a change in the composition or carrying amount of its net assets, a more-likely-than-not expectation of selling or disposing all, or a portion, of a reporting unit, the testing for recoverability of a significant asset group within a reporting unit, or recognition of a goodwill impairment loss in the financial statements of a subsidiary that is a component of a reporting unit
- If applicable, a sustained decrease in share price (consider in both absolute terms and relative to peers).
During this time of uncertainty and COVID-19’s implications on financial reporting and valuation, we are available to discuss and answer any questions you may have to help be better prepared.
About The McLean Group
The McLean Group is a 25-year-old boutique investment bank and financial services firm focused on the Defense, Government & Intelligence (DGI), Security, Critical Infrastructure and Maritime markets. Our 60+ professionals bring deep industry experience and relentless execution to every client engagement. We provide solutions that blend financial creativity with operational expertise. Whether we are providing transaction advisory, valuation opinions or growth capital, our services are unmatched in these core markets.
The McLean Group is pleased to announce that it advised Compass Water Solutions (“Compass”) on its sale to CECO Environmental (Nasdaq: CECE). Compass is a leading global supplier of membrane-based, industrial water and wastewater treatment systems that help customers achieve regulatory compliance of water discharge at the lowest lifecycle cost. […]
The McLean Group is pleased to announce the 2022 Summer M&A Speakers Series starting on May 12th. This five session speakers series will provide a forum for ideas and discussion relevant to investors and c-suite executives in the Defense, Government & Intelligence (DGI), Security, and Critical Infrastructure markets.
Join us for a 60-min discussion around technology trends and market opportunities relating to water in the built environment.
Owners, operators, and occupiers of residential and commercial properties have benefited from innovations in locks, lights, and thermostats (also known as PropTech), but what about innovations that improve the management/use of water? Leak detection is an obvious starting point, but what other opportunities are emerging? Join this discussion to hear commentary on trends and opportunities from our featured participants.
This discussion is sans-powerpoint, and will cover a wide range of topics at the intersection of water & smart home/smart building.
Mark Bertler, The McLean Group (Moderator)
Georg Schücking, BlueTech Research
John Robinson, Mazarine