Auction Methodology – A Guide to Sale Type Selection

By October 19, 2009White Papers

It’s been twenty five years since we put my dad and grandfathers auction pushcart to rest.  Although we pride ourselves on decades of advancement in auction methods, our first advance was an accidental good fortune.

In 1983 our legacy firm, Ross-Dove Company, was awarded the historic sale of Osborne Computers from the United States Federal Bankruptcy Court.  When my father and I showed up early on auction day, the parking lot was over capacity.  The crowd already exceeded a thousand people, each eager to bid on the world’s first personal computer plant to close.  As we opened the doors and pushed the cart in, my dad said  “Kid, you over advertised.  How are we ever going to walk all these people around for two days?”  The rest is history.  The cart became a podium, and we sold everything theatre style.  Well, almost. There was no seating, and we didn’t have a catalog. Nevertheless, the auction sped by twice as fast, and it felt more computerized.  We never looked back, and from that day on we led the industry. A few short years later, over ten thousand bidders filled the Jacob Javitts Convention center for the Drexel Burnham Lambert sale, and bid by catalog and video.  Clearly, they couldn’t walk around 60 Broad Street in advance to preview, not without having a fire marshal arresting us.

A few years later, we were awarded the largest commercial property auction, on behalf of the FDIC, to conduct the world’s first (and most expensive) ballroom web cast.  What’s almost free today from any laptop in the world cost over one million dollars in 1993 for a two day auction.  We paid two hundred thousand per site to rent satellite network time and trucks to broadcast across America and Europe.  It’s amazing what changes occur in just one decade!

Sellers today now have a plethora of choices.  This paper will list several, and attempt to address the most logical reasons for each selection.

One:  On-site Only Auction

Heritage Global Partners believes that these events are best suited for only two types of sales with a common denominator.  They make sense only when there is certainty that all the buyers are local, and the assets will stay regional.  A good example would be assets that go to small businesses in the same city, like restaurant equipment.  There are abundant auctions in every city, and transport costs create disadvantages for long distance buyers.  Another example would be a large custom home.  There is an emotional connection from being on site that can spark the bidding.

Two: Webcast Auctions

The greatest advantage to a webcast is buyers can choose their own comfort, by either bidding remotely or on-site.  The decision on whether to webcast or sell strictly online is often not black and white.  However, there are several major components and variables that should dictate the decision.  The first question is, will we get enough on site attendance to justify it?  The assets need to be under one roof, already aggregated.  To decide the likely attendance, do an analysis of like companies within a fifty mile radius.  A high tech plant located in Silicon Valley or the 128 Corridor in Boston may make a good webcast.  Similarly, automotive assets in Detroit would lend themselves to a webcast.  You can pit regional buyers to compete with global users. Clearly, the same wafer fab in Pocatello, Idaho (as Silicon Valley) may not justify the on-site component in the same industry.

Three: Justify the On-Site Component

Another important factor to consider is whether the live auctioneer is value-added.  A great auctioneer needs an audience and a crowd to work.  A good rule of thumb is that the majority rules.  The webcast selection should only be an option if you believe as many bidders will be in the plant as on the web.

Four: Online-Only Auctions

With the success of online companies like eBay, the paradigm shift has now completed.  Far more auction transactions occur over the web without physical auctioneers than ever before.  In almost every instance where remote bidders can compete, this method has huge appeal.  The most compelling instances occur when there is strong foreign bidders for domestic plant equipment.  Imagine a factory purchasing manager from the Far East logging on to semifab sale in Texas. He wants to bid on the Lam Etcher, only to find out it will be a live, 60 second sale, at 3am his time.  He has to set his alarm, get ready, and decide in 20 seconds whether to bid another $5,000 or go back to sleep.  Foreign buyers prefer online events almost every time.

Each situation is unique, and this paper only attempts to scratch the surface on an interesting topic.  Future white papers will address sector sales versus stand-alone events, timed asset releases, and more.  What is certain is that new technologies and advances will keep us all pushing the debate forward.

Ross Dove

Managing Partner

Heritage Global Partners

Asset Advisory and Auction Services

A Legacy since 1937