downĪt current, at least once per year, a public company with goodwill must assess whether its goodwill is impaired. Nonetheless, a similar trend would not surprise me, given the transactions I have seen in my practice. The lack of reporting requirements for private companies do not allow for a similar study. To develop an aggregate goodwill value at privately held companies, there is no telling how the value and/or its growth compares to these 2,254 publicly traded companies. To study the impact of companies with goodwill and other identified intangible assets, with the help of a private family office Chief Investment Officer, I have prepared a study of 2,254 companies that have reported goodwill and other intangible assets for every quarter since July 2009. The trend of multi-billion-dollar acquisitions have been driven in large part by a troika of: (1) sustained low interest rates, (2) a decade-long bull market, and (3) cash-rich investors. publicly traded companies have roughly doubled the aggregate goodwill values on their balance sheets - by continuing to buy companies at values above the tangible asset (and identifiable intangible asset1) values on their balance sheets. As the acquiring business sees synergies in the operations (e.g., reduce administrative expenses), it will likely value the Target in such a way that the payment to the Target far exceeds the value of the Target’s assets giving rise, in whole or in part, to goodwill. A competing machine shop from out of state is executing its strategy of acquiring smaller machine shops and is looking to acquire the Target to gain a foothold in New York. 2: A machine shop located in Upstate New York has a strong client base around the region (the “Target”).
The difference between the value of these assets and the purchase price should be recognized as an intangible asset, the largest of which may be goodwill.Įxample No. 1: An internet marketing business has a few aging laptop computers and A/V equipment, but it includes a group of talented professionals serving a diverse client base across the Northeast.Ī company interested in acquiring this growing business will likely pay more than the few thousand dollars of the fair value of the equipment. The ride below - the timing and/or severity - is one that is anyone’s guess.īelow are two simplified examples of goodwill from different types of businesses - both may have goodwill to an interested acquirer:Įxample No.
Since 2009, the value of corporate goodwill is reminiscent of a roller coaster click-clacking its way up to the hill’s peak. Goodwill is the excess in the purchase price for a business acquisition above the fair value of the assets that the acquirer receives, less the debt assumed. However, to those attorneys, investment advisors, and accountants, goodwill on a corporate balance sheet is an indication of corporate optimism. To almost anyone but attorneys, investment advisors, and accountants, goodwill may mean friendliness.