The continued military activity still fuels anti-Israel sentiment; US tariffs on exported goods and services are weighing on results; and a continued negative trend has been recorded in the Healthcare technology sector. These are the key factors indicating possible impairment throughout the year.
As companies prepare their 2025 financial statements, they are already working on the cash-flow forecasts required for assessing potential goodwill impairment related to previously acquired activities, while continuing to navigate the ongoing geopolitical impacts on the Israeli economy. After two years of intense conflict, and even after the ceasefire agreement signed in October, continued military operations against terrorist organizations still provide grounds for criticism and boycotts of Israel. During the past year, tariffs were additionally imposed on exports of goods and services to the US, and a continued negative trend was observed in fundraising rounds for technology companies operating in the Healthcare sector. Meanwhile, there were positive changes affecting company valuations: the TA-125 index rose by about 40%, and the interest rate was cut by 0.25% for the first time in two years, with expectations of further cuts. Therefore, each case must be examined individually.
These are the main factors that may suggest an impairment recognition in the past year. If an impairment is indeed recognized, this may also raise the need for a PPA analysis.
The War’s Aftermath Is Still Apparent
After two years of intense military combat, the long-awaited moment has finally arrived, the last living hostage was returned as part of the ceasefire agreement signed in October. Despite the tremendous relief and the relative geopolitical calm that followed, it should be noted that the economy was effectively operating under wartime conditions for most of the past year, with all the implications this entails. In addition to the effects of the war, particularly the impact of recruiting reserve personnel on companies’ performances, although on paper the war has ended, the IDF continues to operate against terrorist organizations on multiple fronts simultaneously, with every military action fuelling boycott movements targeting companies and products connected to Israel. Unfortunately, some companies still encounter difficulties selling their products due to their association with Israel, with clear negative implications for business value.
Selling in the US? You’re Facing Trump’s New Tariffs
It’s no secret that many technology companies focus most of their marketing efforts on the US market, given its size and attractiveness. Trump’s tariff program, announced in April by the US President, has not dramatically changed the overall picture yet. However, companies with significant US sales whose products or services fall under the new tariff regime were impacted this year and have been facing a 15% tariff since August. Looking forward, this uncertainty must also be reflected in companies discount rates, given Trump’s unpredictable policy behaviour.
Acquired a Healthcare Tech Business? There May Be Impairment Risk
Despite a relative recovery in the tech sector this past year, one specific subsector continues to show a negative trend. Based on fundraising data we collected for the technology sector, the negative momentum in Healthcare related tech companies has persisted for nearly two years.
After 2024 saw slightly fewer down-rounds than up-rounds, 2025 recorded a roughly 76% drop in the number of fundraising rounds completed in this field. Therefore, if you have recently acquired a company or operation in healthcare technology, it is highly likely that an impairment has occurred.
Can the Impairment Test Be Postponed to a More Convenient Time?
Accounting standards require that intangible assets with an indefinite useful life undergo an annual impairment test. This test may be conducted at any point during the year, so long as it is performed at the same time each year. However, more frequent impairment tests are required if an event or change in circumstances arises that could reduce the value of the business.
To assess whether there are indicators of impairment, one must examine, among other things, whether significant adverse changes have occurred or are expected in the activity or market environment. Additionally, one must assess changes in interest rates or yields that may affect discount rates, and for public companies, determine whether market capitalization is lower than book value.
When Is a New Purchase Price Allocation (PPA) Analysis Needed?
When acquiring a company or operation, a purchase price allocation (PPA) analysis is typically performed to allocate the purchase consideration among the acquired assets. The difference between the identified asset values and the purchase price is recorded as goodwill.
If an impairment test later shows that the value of the acquired business has decreased, a new PPA may be required to re-allocate the impairment amount across the identified assets and goodwill.
Reliable Valuation Based on Management Forecasts
S Cube is the largest technology-focused valuation firm in Israel, performing around 700 valuations per year. Despite our company’s extensive experience, especially in PPA analyses and impairment testing over the past 17 years, we still believe that no one knows the companies better than their founders and financial teams.
Therefore, the cash-flow forecasts used as the basis for our valuations are not dictated by us. They are grounded in comparable market data and company management’s estimates, through close collaboration. Our experienced analysts advise, guide, and assist management in constructing and justifying forecasts aligned with historical results, standard industry margins, as well as current and projected macroeconomic condition. As a result, our valuations are accepted by the Big Four accounting firms, are defensible, reasonable, and ultimately reflect fair value.
In the current environment, it is essential that company management be closely involved in the valuation process, to properly reflect the negative impacts recorded during the past year on one hand, and the positive effects of interest-rate reductions and lower market risk premiums on the other.
S Cube is available to assist with the impairment testing required for the 2025 financial statements. For more information, contact info@s-cube.co.il.
The information contained in this article is provided solely for general informational purposes and does not purport to be complete or comprehensive with respect to all aspects of impairment testing. Nothing herein constitutes legal, financial, tax, economic, or any other form of professional advice. S CUBE, IBI Group, and their respective affiliates disclaim all liability for any loss or damage suffered by any third party arising from or in connection with reliance on the information provided.