Food Plants Using Auctions More Often to Buy and Sell Assets

Full-service auctioneers offer services from start to finish. For buyers, they can help with sourcing and procurement, crating and shipping, inspecting machinery and providing assurances of condition. In some cases, they even offer maintenance/engineering services. For the seller, auctioneers' services span inventories, appraisals and valuations; cleanup, repairs and reconditioning; listing/marketing and overall management of the transaction; and even demolition after the sale.

“One of the things we've found over the years is that one plant may be looking to start a new project and spend significant dollars on equipment, when those same pieces of equipment – kettles, processors, downstream packaging metal – may be sitting idle at another plant, but they don't know it. We can track all of this, and when the need arises, we can move it from one plant to another and save money in the process.”

- Dan Rosenthal, Schneider

Early on, consulting might include advice to the processor to know what work should be done to increase the condition, usability and therefore value of assets. As for the sale itself, the auctioneer brings "a timeliness and certainty to the process," says Davis. "If we say an auction is going to occur on Aug. 26, everybody knows that equipment will be sold on Aug. 26. There's none of the 'Maybe we're interested or maybe were not,' about it on the part of buyers. The ones who have an interest pay attention to the market, do their homework and make arrangements to participate in the sale."

The same timeliness, the same refurbishing efforts, provide value to the buyer. First, the cost-savings can be significant. Davis cites a very basic piece of equipment, a stainless steel tank: "Let's say it would cost you $100,000 to buy that tank new from the manufacturer. If it has been properly cleaned and maintained, it can be five, 10 even 20 years old, and still be good as new, because stainless steel holds up well."

This isn't always true of more complex machinery with aging sub-assemblies or electromechanical components. But when equipment is in top condition, buyers are better able to size-up the asset and determine when it's cost-efficient – or cost-prohibitive – to adapt to their production environments.

Getting a piece of equipment into the plant in a timely fashion can be worth many thousands of dollars if the plant has a critical need. So a tank that costs you $100,000 new from an original equipment manufacturer (OEM) might also carry with it a waiting period of three to six months. "If you can find the same type of tank being sold at an auction," Davis says, "you may be able to not only buy it for half that price, you might have it in your plant in a matter of weeks."

Beyond the purchase price
Especially at auction, the purchase price of a machine is just the start of its cost. Transportation, part changes, engineering costs and other considerations all figure into cost justification and total cost of ownership. Cost and time – delivery time as well as time to market – are valuable commodities to weigh into any purchase decision.

Shipping is probably the first add-on to encounter. Typically, personnel are on hand at any sizable auction to give shipping prices and offer rigging services.

According to Davis, a typical price to remove a tank that might sell for $50,000 might be $5,000 or $7,000 … or maybe just $2,000. "It's not so much that it throws out of whack your [purchase] price point [especially] when you consider you're shortening your delivery time in some instances by months."

"We've done some very big auctions where individual companies have spent millions of dollars," says Davis. One such buyer, he says, "sent out a group of engineers going over everything at the site and making themselves fully familiar with the equipment, and then went back and checked what else was available. By the time we got to the auction, I think they knew the equipment at least as well as the people who were selling it. They spent millions in the sale, but what they bought would have cost them two or three times that if they had bought it new."

"The term 'used' is a misnomer; it implies worn-out," says Roger Gallo, president and CEO of Equipnet, Canton, Mass., "In the consumer goods business, people are changing lines all the time. They start up a line to produce a particular product, and when that product doesn't sell they discontinue it.

Or they decide to consolidate two facilities, or they get acquired or a variety of other things can happen. So 'used' doesn't mean worn-out, it simply means previously owned. A lot of the equipment, especially from the multinationals, are pristine, top-of-the-line assets that are quite modern."

And lately, the big multinationals have been among the buyers. "When budgets were slashed, some of the biggest food companies, the ones that used to only buy new, started looking more closely at used equipment," says Rabin's Rottman.

On-site or online
There are various kinds of auctions, starting with the traditional event on-site plant auction, where the auctioneer walks a crowd of buyers from one piece of equipment to the next.

"That's a good method for people who want to 'kick the tires,' but we've seen more benefits in not doing that," says Rottman. "We want the buyer to be comfortable, not tired." Walking a plant – assuming this is possible because the plant is not operating – can be tiring, and can lead to buyers missing details if they cannot see and hear well or become distracted.

Instead, Rabin uses a "theater"-style auction from a comfortable room at the plant or a nearby hotel, with some coffee and lunch, and lots of data. Large-screen displays provide information on the item being sold as well as a running tally of bidders, bid amounts and perhaps simultaneous Internet bids.

Internet auctions have become commonplace. These can be held simultaneous to the physical event, so the buyer does not have to physically attend the auction to compete with bidders in the "theater." Of course, sales also can be conducted in a 24/7 web environment. This is typically done using an industry-specific system similar to eBay. Even at eBay, it is possible to find food plant equipment, however this is typically for well-known pieces of equipment that require little or none of the kind of consulting an industry-specific seller can provide.