As desire to acquire mounts, so does risk of losses

Goodwill is the accounting term for the premium that companies pay when they buy each other, over the value of the actual assets being purchased, such as factories, products in a warehouse and office equipment.

Goodwill is the value placed on the intangible, special something about the company being bought — its reputation, perhaps, or its skilled workforce or corporate culture.

Companies in the Standard and Poor's 500 index are loaded with goodwill right now — $2.5 trillion worth thanks to a flurry of high-priced acquisitions recently, according to FactSet, a data provider.

In the 12 months following the end of the 2007 deal boom, write-downs of goodwill reduced S&P 500 pretax earnings by more by 38 percent, according to data provided by R.G. Associates, a research firm that specializes in accounting issues.

By comparison, investors buy and sell technology companies on the stock market for about 4.1 times book value.

Revlon's $419 million purchase of Elizabeth Arden announced a few days after the Microsoft news is 50 percent more than the target company shares, too.

By contrast, the $22.3 billion offer by Oreo maker Mondelez for Hershey announced on Thursday was just 10 percent higher than what Hershey's shares had been trading for.

The value of many companies resides now more in the knowledge, experience and skill of workers than in the machines on their desks or in their factories, assuming there are any factories.

Companies tend to buy other companies when stocks are soaring and are expensive, and goodwill from the deals is high, then pull back after stocks have crashed and there are bargains aplenty.