Getting the Most From a Plant Sale

Too many companies rush to sell off equipment, cannibalizing the value of the real estate.

By Jeffrey Counsell, CB Richard Ellis

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Manufacturing food profitably has rarely been so challenging. The effects of fuel and ingredient inflation, a consolidated retail sector and dynamic consumer preferences all collide on the plant floor, where margins are thin and sustainable only though manufacturing efficiency and throughput. When either is threatened, a plant closing looms, and decisions are made on how best to recover dual value streams from plant and equipment now surplus.

Historically, those value recoveries involved two interest groups, often operating independently of the other: Plant operations dictated the fate of equipment and infrastructure, and corporate real estate managed what remained. And often what remained was a cannibalized asset, use- and value-impaired, suitable neither for food production nor a lesser industrial use.

What was a food plant has become a warehouse, or worse, indistinguishable from millions of square feet of competing vacancy. The better course, as described below, is an orchestrated approach, where corporate operations and real estate manage the sale of the “whole,” optimizing the chances it will to exceed the narrow value of its pieces.

First, to realize this result, dueling interests must work in tandem, understanding the most appealing asset will be one that properly balances real and personal property. Too often the equipment "tail" wags the property "dog." Seeking to recover easy values quickly, owners liquidate infrastructure to the detriment of property value and potential food occupancy.

Specifically, in redeploying or liquidating refrigeration, steam, waste pre-treatment and bulk ingredient systems, owners dilute next-generation use, mitigate speed-to-market advantages, and in so doing, eviscerate property values.

Spontaneous equipment decisions may yield a quick value recovery but they often compromise far greater property sums. A more informed path requires an honest dialogue among several parties: corporate operations, the corporate real estate department, an equipment liquidator (who is willing to concede infrastructure left behind may support a larger real estate recovery) and an industrial broker fluent in the nuances of food facility valuation and marketing. Neither of those last two capabilities is a commodity, so whom you choose matters, as does the ability of both experts to appreciate the other’s role for the better interests of the client.

Second, once the property brokerage/equipment liquidation team is identified, value will be maximized when both parties operate in sync. Many commercial brokers fail to comprehend the role infrastructure has in defining use and value; likewise, many liquidators are inclined to pick clean the property bone, with no regard to what remains. One or the other might reap a windfall, but the loser most certainly is the corporate seller failing properly to manage the process.

The better approach would be to define what the most all-inclusive asset package might be; to include necessary infrastructure and non-critical surplus equipment; and, over time and in response to market demand, allow the latter to be liquidated as the parties agree. By marketing the most complete asset package available, the seller maximizes the chances of a full value recovery.

Third, in cases of extreme property obsolescence, where age, ceilings heights, demising walls and condition prohibit functional next-generation food use, including non-critical equipment in the sale process may be the only means to generate market interest quickly. Many distressed properties can be packaged to trade where the proceeds of liquidated equipment and metals salvage offset acquisition cost and carry risk.

Indeed, the demand for metals from emerging economies has pushed prices to the level where the salvage value of copper wire and stainless and structural steel may exceed any property value in-use. Admittedly, this class of emerging opportunistic “salvage” buyers has few CFOs doing hand-stands, but it does represent one solution to disposing of highly distressed properties. The relevant question then becomes not “How much is it worth?” but “How many years will it take to sell?”

In summary, a closed plant has many stakeholders: owners, employees, municipal providers. Displaced employees want new jobs, owners want to maximize surplus property values and equipment assets, and municipal providers want demand loads. Proper orchestration and marketing of the property, infrastructure and the equipment package yields the best results. When functional assets are able to be redeployed as such, it benefits corporate, labor and community stakeholders. And everyone wins.

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