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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"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.

Many and perhaps most auctions by major industry auctioneers are conducted simultaneously on-site and online. Either way, it's not the mode of selling, but the matching of asset to need that matters. Accountability and assurances are based on the reputations and relationships of established industry specialists. And in this data-heavy age, extensive information about the condition and working order of a machine often is available.

Loeb operates two types of auctions: on-site sales with a simultaneous webcast, and an online eBay-type sale. In contrast to on-site participants, very few online participants make the effort to do a physical inspection before the auction. So how do they know the assets they're after are worth their interest? Loeb offers photos and videos from every possible angle – showing any damage – and good online descriptions of the equipment for sale. The company does not guarantee the online content because it prefers buyers to visit and do a physical inspection.

Still, most online-only participants do enough homework on big-ticket assets to prevent ill-advised – and career-threatening – expenditures. "There are ways to mitigate the risk, or at least being able to explain to your boss why you've just bought a piece of equipment sight unseen," says Winternitz. "It's not uncommon for a customer to contact the OEM with the serial number and get a complete service history, or even hire the OEM or a third party to go in and inspect the equipment."

"People are getting more and more comfortable with the Internet," concedes Tom Larson, sales manager for the dealer side of Loeb. Even on the dealer side of the business, the digital age has brought significant changes to the marketplace. "To give you an example, in the last decade, we've gone from mailing-out a quarterly newsletter to updating our inventory twice a day on the web. There are times when an e-mail blast of incoming shipments results in sales before the truck even gets to the warehouse."

A financial hedge
Cost, time to market and an ongoing relationship can work in synergy to create a competitive advantage beyond the short-term transaction.

"An energy bar production line: You could buy one in an auction, have it disassembled from where it sits, reinstall it in your facility and it have it up and running within three to six months," says Rosenthal. "Now, if you were to order it from a manufacturer new, it could take up to a year or more. First to market means a lot, and a used piece of equipment can help you get your product out there faster."

Moving beyond one-time transaction services, surplus equipment companies can be part of a food processor's longer-term strategy to control assets and capital expenditures.

General Mills, Anheuser-Busch, Labatt Breweries and others have partnered with Schneider Industries (www.schneiderind.com), St. Louis, an auctioneer and more. Schneider manages ongoing investment recovery programs for those companies, which go beyond traditional buying and selling to include tracking and transferring internal assets from plant to plant.

"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," says Dan Rosenthal, chief operations officer for Schneider. "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."

He adds that used equipment can be a hedge against risk in an industry where consumers are sometimes fickle and trends are short-lived. For example, a few years ago, lines and even plants were being built to cater to demand for Atkins Diet foods "and some of those plants weren't even finished before the fad passed," he reflects. "You have to be careful when you're forecasting what you're going to be producing a year or two years from now."

Equipnet also offers asset management services. Services that go beyond the sale include asset redeployment, custom information technology programs, maintenance services and more. Specifically germane to buying and selling is a set of "cascading liquidation" options that includes various levels of negotiated sales as well as auctions – from live on-site auctions to webcasts to an eBay store.

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