Anatomy of an Asset Sale: Obtaining Maximum Value

By September 28, 2009White Papers

Although no two plants or projects are ever exactly alike, there are certain fundamental principles and procedures that always must be precisely executed to obtain optimal asset value.  The purpose of this paper is to give future sellers of capital assets used in manufacturing straight forward and simple guidelines about how to proceed.  These are procedures that govern vendors and are the battle-tested best practices of adopting practical guidelines that apply in every capital asset auction or asset brokerage.

Step One:  Make certain your asset sale advisor or auctioneer is qualified for your specific set of tools. It is crucial the firm has a verifiable track record of past and recent sales of similar assets.  Generic references from nonrelated industries should not complete your vendor selection due diligence.  The correct procedure is to request recent comparable sales and verify that the client’s expectations were indeed met.

Step Two:  Agree on value expectations and time lines before your selection. Maximum value can be diminished if reserves are set too high in an asset brokerage or auction environment.  Buyers are keenly aware of unmotivated sellers and their interest will rapidly decline.  Make certain your definition of a successful sale is shared by a confident sale advisor.   Telling him your value needs should not be the starting point.  A good advisor should present you with solid facts and financial analysis.  Asking for the gross sales price can be misleading without all the associated data.  Decisions on your ROI must be made by knowing all of the proposed costs borne by the seller.  Know exactly whether you will be charged a commission from the gross proceeds and every single charge the vendor may want for their reimbursement.  There are dozens of these, ranging from marketing and PR to labor, accounting, rigging, and storage. All are negotiable to an analysis of net proceeds, and the length of time to receive payments is critical.

Step Three: Agree up front on the scope of services. Before commencing any project, make sure there is total transparency and clarity, meticulously delineated between your responsibility and those of the asset sale advisor.  Valuable time and breakdowns in critical functions occur when either party lacks clarity on each other’s role from concept to completion.  There are dozens of functions and variables to be addressed.  Which party will gather maintenance or calibration data?  Will decommissioning of power and electric be internal or outsourced through the vendor?  Will approved riggers be vendor or company supplied?  Who will insure proprietary data is wiped from hardware?  Which party coordinates environmental and EPA clearance to sell assets?  In insolvency sales, there are often even stricter debtor and creditor compliances that may apply.  Each party has work to do and must be held accountable to the agreed upon scope of service.

Step Four:  Agree on both sale strategy and tactical execution. Maximum asset value is only derived from the right strategy and flawless execution.   The only way to avoid hearing “we tried our best and it didn’t produce great results” is to commit to a strategy and methodology up front, and  then collaborate on monitoring its execution.  If your vendor recommends asset brokerage over a date certain auction, and you must vacate the premises by a finite date or pay penalties, you must have tactical answers.   You need to know up front the options and a “Plan B” for unsold assets.  Can the asset advisor store them and if so at what cost? The tactical execution and impending risk may mitigate the initial strategy recommendation, and a more certain timely closure of all assets may prove to be the more effective strategy.  Each offering is unique, and one seller’s strategy may not work for the next with the identical assets.  Plan together, understanding how the tactics impact the strategy.

Step Five:  Meet and embrace the team. Maximum value is derived by team work and mutual reliance on many disparate functions, all moving forward in tandem.  No matter how persuasive the references or presentation appeared, chemistry and synergy are essential.  To insure a coordinate collaborative environment, request a single source fulltime project manager, both knowledgeable and responsible for all functions and communication.  When meeting the project leader, request names, backgrounds and responsibilities of each service provider.  Make certain every box is checked with a name. Always get assurance that regardless what other projects your chosen sales advisor engages in, your team remains available and committed.  Changing parties midstream risks the value of your assets.  It must be one team, concept to completion.

Step Six:  Trust your decision and your sale advisor. Once the selection has been made and the team strategy, tactics, and scope of services begin, it’s mission critical to maintain trust and stay the course.  If the decision agreed upon was a date-certain auction after sixty days market penetration, stay the course. You may get an aggressive pre-auction offer that appears very tempting.  If your advisor stresses the asset is important to the offering and necessary to anchor the sale, rely on your choice and their advice.  If your advisor reacts to real time changing market conditions and recommends fast sales or changing the asset stratification based upon customer input, allow their guidance.  Hold your advisor accountable for factual, accurate information, but be ready to respond and commit to one team. There is one goal:  Obtaining Maximum Value.

Ross Dove

Managing Partner

Heritage Global Partners

Asset Advisory and Auction Services

A Legacy since 1937