The Whole Versus the Sum of Parts: An Analysis of Aggregated Entirety Sales Versus Piecemeal Auctions

By November 6, 2009White Papers

We always try to advise our clients on the likelihood of success and use solid fundamental business acumen to operate in the realm of probability, not the realm of small possibilities. Lessons learned over time have taught Heritage Global Partners that the probability of selling closed facilities intact are usually low percentage endeavors and often time consuming missteps.

Over the years, there have been a thousand occasions where I have called on plant closings and heard, “Thanks for the inquiry, but we’re not ready for you. We want to sell the plant as a whole.” In many instances, they have been successful on their own. In others, we have been engaged and successfully found a buyer.

To this end, ask yourself the five central questions that are a checklist for when an entirety sale has a real possibility to outperform a stratified piecemeal disposition.

Question 1: Is location key?

Turn key buyers are far more likely to produce enhanced value because of location. There are myriad reasons this can occur. Maybe your plant is geared to manufacture parts where the most logical buyers are in close proximity, or located in a special zone and you receive tax credits and low cost financing.  Perhaps your plant has favorable grandfathered zoning or permits only transferable on site.

Question 2: Is installation both costly and a significant barrier to entry?

If your plant was built with very expensive, specific design and custom installation, the right buyer can pay a premium. A perfect example is when you have reconfigured a basic industrial building for custom usage with clean rooms, extra hazardous materials protection, fire walls, data centers, etc. If so, buyers with these needs will pay over asset value for intrinsic benefits.

Question 3: Does the bundled package allow the least favorable asset greater liquidity?

Suppose you own a modern packaging plant located two hundred miles from a major metropolitan city. You own the real estate but it is illiquid on its own, with no new users needing two million square feet of vacant space. However, you know the top three competitors will need capacity once you close and do not have available space. In this case, forcing a bundled sale can make them justify placing some extra value on a building not really marketable as a stand alone sale.

Question 4: Can buyers anticipate any potential revenue stream from acquiring in place?

Often decisions to close a plant are made because of utilization or changes in core business strategy. If you believe there is some significant opportunity for a new buyer to retain or assume some specific contracts or supplier agreements, then their factoring in increased income stream, which should enhance value over piecemeal sales.

Question 5: Have you thoroughly done the math in order to decide if the sum of the digits may outperform the whole of the work?

It’s almost always free to have the best of breed sector auctioneer tour your facility and get you an auction value estimate on each asset class. It’s the critical tool to doing an ROI analysis on attempting an entirety sale and in knowing both what price is a real premium versus when to put it all on the block and realize auction value.

Ross Dove

Managing Partner

Heritage Global Partners

Asset Advisory and Auction Services

A Legacy since 1937