At what point can we say that goodwill created by serial acquisitions penalises the buying company?
Is it true that goodwill write-downs do not amount to value destruction if the acquisitions were paid for in shares?

Analysts are willing to look the other way on goodwill when the company does not disappoint them, that is, as long as it achieves the growth and margins promised or anticipated. If not, analysts will very probably make goodwill into a problem that they had previously neglected. Life is unfair.

The reason for this is that goodwill is the anticipation that profitability will be above the required rates of return, through a first-mover advantage (e.g. Internet), an entrenched competitive edge or to the ability to unlock significant synergies. But if profitability is not there, it must mean that the assets were overpaid and that anticipations have been disappointed. So whether the company is valued on discounted future cash flow or net asset value, the conclusion is the same: a loss of value.

It is often said nowadays that if the acquisition was paid for in shares, goodwill write-downs are of little importance and have no impact on value, as there is no cash involved.
While a write-down does not involve cash, it is erroneous to believe that only decisions affecting cash flow affect value. Capping shareholder voting rights, giving 10 voting rights per share to certain categories of shares, and other such manoeuvres, do not involve cash either, but they reduce equity value as sure as two and two make four.
To write down goodwill on an overpaid acquisition is to acknowledge that the acquisition was overpaid. The fact that the buyer's shares were also overvalued at the same time changes nothing. If the company had issued new shares and sold them for cash it would have taken advantage of a high share price to the greater benefit of its shareholders of the time and could have used this cash to make acquisitions at far more reasonable prices, once the euphoria had past. This is exactly what Bouygues did. It raised €1.5bn in March 2000 at double its current share price, declined to take part in the UMTS auction and has dipped into its war chest to buy out some Bouygues Telecom minority shareholders at a price far removed from those prevailing in 2000. Its share price has merely halved, while competing carriers have fallen by at least two thirds.

Let's not forget that a shareholder in a company that funds an acquisition has been diluted. He has agreed to a smaller slice, as he expects the pie to grow more (by, say, 30%) than the number of other guests demanding their slice of the pie (25%, for example). And now they're telling him that, in fact, the pie is not getting 30% bigger, but just 10%, because the assets purchased ended up being less valuable than expected. Unfortunately for him, there are not necessarily fewer guests. The slice has shrunk by 12% (110/125-1). So, yes, there has been value destruction.