Lingering high interest rates may trigger more goodwill impairments

BVWireIssue #260-2
May 8, 2024

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Faced with elevated interest rates that show no signs of dropping, more companies will be forced to recognize goodwill impairments, according to a recent Wall Street Journal article. Higher interest rates mean increased cost of capital, which lowers business value.

Big shock: Pretax goodwill impairments totaled an estimated $82.9 billion across 353 U.S. public companies in 2023, above the historical average of 290 companies dating back to 2006, based on a review of filings through Monday, according to Kroll. That figure is down 39% from $136.2 billion across 400 companies in 2022. Last year, companies managed the shock of inflation by raising prices to offset higher costs. “The price increase was a big shock to the system, but we’re still seeing the aftereffects of the higher interest rates now,” said Carla Nunes, a managing director at Kroll, who was quoted in the article. “If we continue in this higher-for-longer path, we could still see a significant level of impairment this year.”

The biggest known impairment so far this year, according to the article, was from Walgreens. The company said in March that it recognized a $12.4 billion charge related to the reduced value of its VillageMD business, with $5.8 billion attributable to the pharmacy operator, which owns a 53% stake in the primary-care unit. The $12.4 billion charge exceeded that of the biggest goodwill write-down in 2023, with Lumen Technologies recording $10.69 billion.

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