Will Compass record a goodwill impairment charge related to the Anywhere acquisition by June 30, 2027?

The 18-month window is the dominant factor. Goodwill impairment within 18 months of deal close is rare because: (1) PPA itself takes 12-18 months to finalize, meaning the goodwill figure may not even be settled until mid-2027; (2) companies perform annual impairment tests, typically in Q4, meaning the first formal test would be Q4 2026 or Q1 2027; (3) management has overwhelming incentive to defend carrying value during early integration when synergy realization is still aspirational. The 43x synergy premium is aggressive and raises the long-term impairment probability, but within this window, management controls the projections used in DCF-based fair value assessments. A housing crash severe enough to force a triggering event is possible but not the base case. Base rate of 10-15% for 18-month impairment on large deals aligns with my assessment.

Several factors push this slightly above the naive base rate: (1) the 43x synergy premium is at the upper end of M&A pricing, meaning the bar for fair value support is higher; (2) Anywhere's 6.7x leverage and declining organic performance suggest the target was already under stress; (3) the residential real estate brokerage industry is highly cyclical, and any meaningful housing downturn in 2026-2027 could trigger an interim impairment test. However, all-stock deals have a built-in defense: if Compass stock appreciates, the implied purchase price rises with it, making impairment less likely. Management will use optimistic long-term cash flow projections during the honeymoon period. The combination of elevated risk factors and the short window nets out to approximately 15%.

I weight the management incentive and accounting mechanics heavily. Even if the deal was overpriced and synergies trail expectations, management will not record impairment within 18 months unless forced by catastrophic circumstances. The accounting test compares carrying value to fair value, where fair value is based on DCF projections that management has significant latitude in setting. During Year 1 of integration, it is entirely defensible to project aggressive synergies because there is no track record to contradict them yet. The annual test timing matters too -- if the test is done in Q4 2026 (common), a failure would appear in the 10-K filed in early 2027, within the window. But at that point, the deal will be less than 12 months old, and management will set projections to pass. A housing crash or severe agent defection could force a triggering event, but the probability of such an extreme scenario within 18 months is low.

The base rate for goodwill impairment within 18 months of a large deal is approximately 10-15%. This deal has above-average risk factors (aggressive premium, distressed target, cyclical industry) that push toward the higher end of the range, but the short timeframe and management's strong incentive to avoid early write-downs are powerful countervailing forces. The all-stock structure is important: Compass did not deplete cash reserves, and the purchase price in dollar terms fluctuates with stock price. If Compass stock holds or rises, the fair value hurdle is easier to clear. The identifiable intangible assets (Century 21, Coldwell Banker, Sotheby's brands) have genuine value that will absorb some PPA allocation, potentially reducing the goodwill quantum. I estimate 14% probability.

I put more weight on the cyclical risk than other runs. The residential real estate market is sensitive to interest rates, and if mortgage rates remain elevated or rise further through 2026-2027, transaction volumes could decline materially. Anywhere was already in financial distress with 6.7x leverage -- if organic performance continues declining post-merger, the combined entity's reporting unit fair value could deteriorate. The 43x synergy premium means even moderate synergy shortfalls would leave carrying value unsupported. Additionally, the question covers filings through Q2 2027 10-Q, which would include any triggering events through June 2027. If a housing downturn materializes in late 2026, management could be forced to test and potentially impair in Q1 or Q2 2027. However, I still assess this as below 20% because management has substantial discretion in timing and methodology of impairment tests.

Historical precedent strongly favors NO within 18 months. Examining major real estate and brokerage M&A transactions, impairments typically lag deal close by 2-4 years, appearing when the initial integration narrative breaks down and management can no longer credibly project synergy realization. The Compass-Anywhere deal closed January 2026, meaning by June 2027, only about 18 months of integration data will exist. Management will credibly argue that synergies are 'on track' or 'early days' as long as there is no catastrophic deterioration. The franchise brands provide real identifiable asset value that will lower the goodwill percentage of purchase price, further reducing impairment risk. Annual impairment test will likely occur Q4 2026 -- management will pass it on forward projections.

Short timeframe is the key factor. Goodwill impairment within 18 months requires either a catastrophic trigger (housing crash, massive agent defection) or management voluntarily writing down value. Neither is the base case. Management has every incentive to maintain optimistic projections during early integration. The 43x premium is concerning long-term but manageable in a 18-month window. Base rate of 10-15% applies.

Slightly higher than base rate due to specific risk factors: Anywhere's financial distress (6.7x leverage), housing market cyclicality, and the aggressive 43x premium. If housing conditions deteriorate meaningfully in 2026, it could create a triggering event forcing interim testing before the first annual test. Agent defection is also a risk that could materialize quickly post-merger. However, management control over fair value projections and the all-stock deal structure provide significant buffers.

The combination of management incentives, PPA timing, and the short window makes impairment unlikely. Companies almost never impair goodwill during the PPA measurement period. Even if the deal proves to be value-destructive over time, the accounting recognition will lag. The first annual impairment test in Q4 2026 will be based on newly-established projections that management has latitude to set optimistically. Only a severe macroeconomic shock to housing could override this.