Food Plants Using Auctions More Often to Buy and Sell Assets

Surplus and used equipment – from both dealers and auctioneers -- offer benefits to both buyers and sellers in a tight market.

By Bob Sperber, Plant Operations Editor

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Buyer and seller both can win in the used equipment market. Equipment in the food industry tends to retain its value better than that in other industries. Even a 10-year-old machine that is well maintained may still bring the seller up to 50 cents on the dollar if the processor conducted good preventive maintenance. And it can bring the buyer savings of 50 percent or more.

Co-opetition among dealers, auctioneers
"A typical situation for us might be that a company with 10 or 20 or more plants is buying another company that has a couple of plants," says Marty Davis, president & CEO of M. Davis Group, Pittsburgh. "What they really want is the smaller company's volume, and maybe the label and brand. And they will move that production to another plant where the added production can bring their percentage of capacity up."

Such sellers typically call the auctioneer to consult, appraise and prepare reports in helping that new plant owner decide which assets to keep and which to sell. In some cases, no equipment avoids the auction block. This was the case at an auction earlier this year in New York, where Davis sold "every last piece of equipment that was in that plant. In other situations, we may sell the 70 or 80 percent of the plant that is not transferred as part of a reallocation of production."

It's not always easy to find good, used equipment. For help, food processors can turn to specialists, for whom this is a core competency. Surplus equipment houses of all types keep their ears to the ground by building relationships, maintaining databases that track customers' plants, tracking public bankruptcy records and being aware of all leads in the used equipment grapevine.

"Typically a dealer doesn't want all that equipment," says Keith Rottman, chief appraiser for Rabin Worldwide, San Francisco. "When we go in and auction a plant, we sell everything including the kitchen sink, whereas a dealer is more likely to want a handful of key pieces of equipment."

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."

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