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The Ten-Year Run

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The IAA (Industrial Auctioneers Association) asked me to write an article for the Podium. I have been sitting here staring at the suggested topics for an hour. I do know a little bit about each one and was about to pick one when something inside helped me find my voice. I do have an article to write or really more of a story to tell. I hope you all enjoy reading it as much as I have enjoyed living it.

This last decade has been a true transformation of our industry and I have been able to witness it from the only place better than a front row seat. I have been out there on the playing field. I have scored more than a few times but believe me I have also been run over and pounded into the ground.

Listen up, I think you will find it both entertaining and enlightening. I had a family auction company called Dove Brothers that my brother Kirk and I took over from our Grandfather and Dad. We competed nationally on industrial plant closings and were a leader in technology auctions. It was the late 1990’s and I was very proud of our fifty person firm and content. I had joined the Silicon Valley Chapter of the Young President’s Organization (YPO) and was in a forum with very bright and successful people. Seeing their accomplishments was motivating me to take our company to the next level. We had a special strategy meeting where they said come up with a list of ten new things you could auction and be innovative. I don’t remember too many items on the list, but do recall airplane landing rights, satellite airways, and motion picture rights being rejected. They sent me back to the drawing board.

Then it happened. I was in a bar in New York and I saw a CNN show talking about eBay being worth billions and revolutionizing the auction world. They were showing pictures of beanie babies. I told everyone at our table that I could do something much bigger with corporate assets. The obvious question was “Who is going to give us the money?” “And where is the cocktail waitress?” Two weeks later I went back to YPO and told them my idea to build an internet marketplace for the billions of dollars in industrial assets that sell every year. Several people told me it was a great idea and that I should write a business plan that models the size of the market, the costs to build the business and potential revenue stream. I, of course, said, “Screw it,” and asked, “Where is the cocktail waitress?”

One of the smartest guys in our chapter ran a venture capital firm. He said, “Ross, it’s not that hard. I can help you. Me and you can spend a few weekends in front of your computer doing research and building models. With the right case study we can probably get you funding.” I was forced then to tell him it wouldn’t be that easy. First, I would have to buy a computer and he would have to teach me how to turn it on.

It happened. I found out how little I knew and how much I knew at the same time. It was primarily a two weekend question and answer session. He would say, “Which verticals do you want to focus on?” I would say, “What’s a vertical?” He would say, “What is the estimated residual value compared to annual domestic manufacturing CAPEX?” I would say, “Let’s go get a beer.” Two weeks later, we had a twenty page plan. I remember the first sentence: “According to the Forester Report over 100 billion dollars of excess and obsolete industrial machinery and supplies trade annually. The market is highly fragmented with no dominant firm.” One week later, I had completed a six million dollar series A funding and was the new Chairman of the Board of Dovebid, a hot venture-funded, seventy year-old, “Start Up.” My brother, Kirk, joined our board and we were told we needed a CTO immediately. Neither of us even knew that “CTO” stood for “Chief Technology Officer,” until he had thirty engineers and the six million was gone.

In those days, building the website cost a fortune, because people stayed up all night coding and recoding and saying the redundant back bone was not scalable for launch. At the next board meeting, the CTO informed us that it was a joke and embarrassment to work for an under capitalized start up and he couldn’t afford to stay unless we were serious. To prove how serious we were we gave him six percent of the company and promised we would raise a Series B and give him as many millions as he wanted.

Back at YPO I told them it was impossible for me to fly around and keep doing auctions for our clients and get the launch up. They had the answer. You’re not scalable. Go hire a president who has a demonstrated track record. Before you knew it, we were the only auction firm with an Arjay Miller, Stanford Scholar, who led public offerings with Goldman Sachs, on our team. He advised us to immediately launch because we were in an incredible “race for eyeballs;” he also warned us that hundreds of other firms were raising much more money with a plan to dis-intermediate us. I am a fighter and was now in full gear. I told the board not to worry that the auction business was my game and nobody was going to do that to me. We would dis-intermediate all their asses.

They were very excited that now I got it, and we were going to dominate the B2B space. They said we are in a real war with Trade Out, Zonetrader, Asset Trade and about one hundred vertical niche trade-up, trade-everywhere guys. I said we might start losing some of our regular auctions to the other industrial auctioneers but I would kick-butt in the eyeball and content war.

We got serious. We raised another 140 million fast. Everywhere I went, people said “we’re in” and my existing guys said to be careful, because their money was too expensive, and to watch out for ratchets. But we all agreed we had no choice. So we did the smart thing. We decided to raise the value of Dovebid to 350 Million in our Series C to not get diluted. I felt great, even though they ratcheted me, my 20 percent was worth only seventy million. It was now 2000 and we had compromised with each other and integrated to some extent.

Our company now had two clear groups. The auction guys and the “smart people.” We met for hours and agreed with the smart people that we couldn’t all agree on our strategy of whether we were going to be a market place or market maker where we keep doing onsite auctions along with our new eBay style online auctions. Together with our board we agreed it was now time to bring in the “really smart people” and pay them millions to pinpoint and target both our key metrics, positioning and brand strategy. We, of course, decided to bring in the world’s largest and most prestigious consulting company.

It was quite an education. They were astounded to find out I had gotten this far without a full time public relations director and we immediately needed more articles, positioning, and eyeballs. Off I went on a press road show and completely abandoned the old auction business to Kirk Dove. While he was signing auctions to pay for the old people I was out doing photo shoots on press tours. Boy was I cool.
I actually made the cover of Forbes. Back at the ranch, Kirk had really made headway. Our website was a great compromise of his pragmatic approach to merging old line auctions with webcasts and he had created featured online auctions that were actually working.

We now had content and eyeballs but the board said we must immediately change our strategy and adapt to the new B2B market. All of a sudden, it still didn’t matter how much money we lost but we now must have a very rapid quarter over quarter sequential growth. Nobody, including the smart people or the really smart people, knew how to do that. They said that only Kirk and I can do that part because we had “domain knowledge.” When I said, “What does that mean?” They said, “You know both the sellers and competitors. What do you recommend?” I said, “Why don’t we just go buy everybody and post all their auctions and dealer assets on Dovebid so we can always have Q1 to Q2 sequential growth.” And so we did. We weren’t very worried about the cost because we were now a dominant player in the B2B landscape and a hot IPO candidate. They said we must get 50 million in revenue to file an S1 because we were late to the game.

With the help of our newly acquired companies and as early leaders doing both webcasts and internet auctions we hit our number. We filed our S1 and got ready for the road show to make us a billion dollar market cap. Then our bankers advised us to cancel the road show because we were once again late to the game and the B2B landscape had changed and is was a dotcom blowup disaster. The investors were now demanding a demonstrated “path to profitability” along with the Q to Q sequential thing. This was real bad. We were all in shock. There was an emergency board meeting where I was warned to get real or I would never be a B2B billionaire and was at serious risk of becoming a dotcom bomb.

Fortunately all the other dotcom bombs needed auctions and we got super busy and appeared on a path to profitability. The only problem was we were running out of money pretty fast and also on a path to poverty. We had another emergency board meeting. I was told I had to stop losing money and had seven days to produce a cash positive pro forma with new metrics. I said, “What kind of metrics?” They said, “You are now being measured like a regular company. We demand your opex is immediately lowered to current revenue stream.”

There was only one answer. Fire people. The good news is that if I showed them I could properly restructure they would give me a final few million dollars in a “down round.” But never again. This began the down round phase. Trust me, during this period I downed more rounds than you can imagine. Amazingly, we actually got it almost right and I was now a hero again. We did reasonably well integrating fifteen auction companies worldwide; buying all the trade out and trade zoners and building a true global footprint and leading our industry. We had all the numbers and metrics and, man, was it hard to do.

Dovebid was now real and ready. We had over 100 million dollars in revenue, successful and growing industry exchanges, online auctions, 650 employees in forty countries and our first quarterly profit. Investment bankers were now fighting for us again. We chose one of the world’s most impressive investment bankers. We did one final final final down round to pay for the accountants and lawyers to write another S1. The day it was finished we headed off for the road show. Our banker informed us we had 90 very very tough meetings because the NASDAQ was once again in free fall and we must race to close before they shut down on us. Therefore, we would charter a G5 aircraft and take the Concorde to Europe.

Halfway through the road show, we were told the NASDAQ did in fact free fall from 1800 to 1100 but everyone still liked our story and we were going to make it somehow. I was so proud. I called my Brother, Wife, Mom, Dad, and a ton of employees and said to meet me at the Helmsley Hotel in New York for our IPO party next week.

The rest is hard to write, even to this day.

We decided the markets were so bad we would immediately head to London and catch the Concorde to New York. We had a board call and decided to lower our cash requirement to only ninety million because we were very worried about after market float. I, of course, was in panic mode about needing at least ninety million since my stock would only be worth fifty million and I wasn’t at all ready to stop flying around on G5 airplanes.

Then came the moment I will never forget.

Everyone was at the party. My wife, Kelly, had laid out the new suit I was going to wear to ring the opening bell for our public offering in the morning. The evening before the NASDAQ opened, I got a call to come to Wall Street before the party.

To this point I have intentionally omitted names and, of course, many details over three quarters of a decade. But One name must be mentioned…Christina Morgan from JP Morgan. She put her arm around me and said, “Even Ross Dove has the right to cry. We just couldn’t get sufficient orders to price your IPO.”

I did cry and sat alone with her high above Wall Street. She said, “Ross Dove get up and stay up. You invited me to a party. People are waiting. Let’s go.”

And so we did. It was quite a party. The rest is history.

 

It was a long and hard fight after that and quite a lengthy down round. But my brother Kirk stayed by my side and we fought long and hard. We had to let great people go, many now are IAA members and industry leaders. We kept the firm alive. Kept most of our clients. But never did get our fourth one filed. Eventually, we sold the firm my family had founded.

As you all know I am proud to be back in the IAA and along with my brother Kirk, we are proud to form Heritage Global Partners, and continue our family legacy. Two of my sons, Alex and Grayson have now joined in the business, as has Kirk’s son Nick. We are now down to the only two metrics that matter: do great work and have fun.

The next round is on me.

Cheers.

Ross Dove

Question and Answer Session with the National Auctioneers Association and Kirk Dove, Managing Partner, Heritage Global Partners:

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1. National Auctioneers Association (NAA): As far as industrial machinery auctions go, what are you doing to survive and thrive?

Kirk Dove (KD): There seems to be no shortage of asset sale opportunities—lots of plant closings, downsizings, etc. Plus the successful companies that re-tool still need a disposition process for the equipment they are replacing. You just need to remain diligent and work the industries of interest to you.

2. NAA: What role does the auctioneer play today?

KD: The auctioneer’s role should be that of a service provider; I find many companies are very good at buying new; they have Ariba and other spend management tools; they negotiate terms and discounts and have the front end process down very nicely. However, they are relatively poor and inexperienced on the backend disposition process, often relying on a very small pool of trusted, local resellers. The auctioneer can expand that playing field exponentially.

3. NAA: What role will the auctioneer play in the future?

KD: I think the roles remain the same—service provider, but they expand a bit. For example, my company has built software to help companies internally redeploy an item within the firm, before it is deemed surplus. I believe for large companies with poor internal visibility, this is a great tool. I believe periodic valuation of tools in industries of high obsolescence makes a great deal of sense. Some companies in the technology sectors that warehouse items for later use are making mistakes; they could buy newer models down the road, with greater capacity, at lower costs. They should be selling idle assets much more frequently. A good service provider is doing more than just auctions for his clients.

4. NAA: What role does the Internet play today?

KD: The Internet has done wonders for our profession: the ability as a seller to provide content, media, streaming data, and information is the essential factor. The technology available to a buyer to search globally for an item has been a huge leap in their ability to find exactly what they are looking for. Prior to the Internet, buyers had to rely on published catalogs and comb trade journals for product. Those days are over. Searches are swift and comprehensive nowadays and that could not have happened 10 years ago.

5. NAA: What role will the Internet play in the future?

KD: Sales will truly be global; as events switch from live to online formats, time differences disappear along with language barriers. As much as an improvement as the “webcasting “ of live auctions were (and we did thousands of them), they could never overcome three deficiencies: First, the sale was still auctioned in a single language at a breath neck pace; Second, the items came up whenever they came up in a sequence at a local time; Third, they were available only for about one minute in duration. So, a global buyer that perhaps does not speak fluent English, would be forced to sit up in the middle of the night, waiting for lot #475 to come up, and this non-English speaking bidder would have 30 seconds to bid on the item at three am in the morning! My belief is that the way of the bid caller is in massive decline on any sale where you need international exposure and bidding . I believe that Internet driven software, not a bid caller, will conduct 90% of all auctions within this coming decade.

6. NAA: What areas or segments of Auction Marketing have a promising future?

KD: Anything that helps load content in an easy to read format will be in demand. Buyers will increasingly not inspect internationally but instead rely on the content surrounding an asset. We are introducing a service for select buyers, where we will inspect the asset for them for a service fee, so they do not have to travel. We will rate it on condition, remaining useful life, available manuals, service records, etc. Also, any services built around searching for items will become increasingly in demand. Buyers want instant gratification; they want their search engines to find their items right away. We are introducing a procurement tool for buyers, who want to purchase select items but are having difficulties finding and negotiating a fair price.

7. NAA: Do you have any thoughts on how auction marketing will be used in the future that may not be used today?

KD: I believe there are two sellers and two buyers in the marketplace. On the sell side, you have Seller A, those that have to sell (bankruptcy, plant closure, replacement machines coming, etc.), and Seller B, those that would sell if convinced (the purchasing manager who has his own reseller program, the facility manager who is storing items in overcrowded warehouses, etc). On the buy side, Buyer A, professional resellers in all industry sectors (machine tool dealers, computer brokers, repair houses, etc.), and Buyer B, end users looking to buy used and save some money. The Auctioneer stands squarely in the middle and needs to wear four hats. On the sell side, he has to service Seller A by providing an efficient channel outlet for their equipment, and the auctioneer must prove to seller B that his channel is more effective than other channels that Seller B may be considering. 
On the buy side, the auctioneer must provide continual information to the Buyer A community for the product he has now and will have for upcoming sales (advance notice to this segment is essential). This is critical, because many dealers and resellers will bid considerably higher if they receive detailed advance notice of a sale. Often, they can come to that sale and have items pre-sold, which allows them to bid in a much stronger capacity. To meet the needs of Buyer B, the auctioneer of tomorrow will need to dominate in the search engine optimization arena; if the one time end user typing in used CNC lathes gets directed to your website, you will benefit substantially over all others.

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

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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

The Impact of "The China Factor" on Secondary Market Values

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Since China joined the world trade association nearly a decade ago, manufacturers in the United States have been the largest supporters of both outsourced manufacturing and plant relocation.

China has invested over a trillion dollars in U.S. debt, and its manufacturing success is directly tied to a vibrant North American economy and confident consumer spending.  It’s not surprising that with the U.S. now acquiring over one-third of all export assets manufactured in China that the out growth is dual reliance.

When an American consumer seeks to buy a vacuum cleaner, they are no longer able find any that have been made in America in chain stores, as is the case with many products today.  North American demand for used assets decreased as manufacturing plants in the United States closed and were sold off. At the same time, demand in Asia increased. The United States and China are now codependents, and this is an increasing trend around the world. This phenomenon is true across dozens of sectors, from necessities in the automotive industry, such as tire production, to convenient home appliances like the microwave.

As factors of outsourcing grow exponentially, the paradigm shift in selling used equipment is profound.  Much has been written, both positive and negative, about the impact of U.S. manufacturing being outsourced to Asia.  It is important to address the impact of outsourcing on domestic and global values and to create sales timelines for performing but redundant manufacturing assets in North America.  China’s effect on sales and values is threefold.  First, sales take longer.  Second, marketing costs more.  Third, many times asset brokerage and regional expertise are required.

Much has been written about the positive and negative impacts of the outsourcing of US manufacturing to Asia. Beyond that, we need to consider the impact of outsourcing on domestic and global values, sales timelines, and strategies for North American manufacturers that are performing but redundant. It is not surprising that the outgrowth of the US’s current acquisition of over one-third of all export assets manufactured in China is mutual reliance.  China has invested over a trillion dollars in US debt, so its manufacturing success is directly tied to a vibrant North American economy and confident consumer spending.  Likewise, since China joined the World Trade Organization nearly a decade ago, US manufacturers have outsourced manufacturing and relocated plants to China more than any other country. As these factors exponentially grow, the paradigm shift in selling used equipment is far more profound. When you go to an “All-American” store such as Wal-Mart to buy your vacuum cleaner, none of it is now made or assembled in the US. As each plant here has been sold off, North American demand for used assets decreased as Asian demand increased. This phenomenon is true across dozens of sectors. Clearly, the US and China are now in a state of co-dependency, and the strength of this dynamic will only increase.

Given this history and scenario, how does the China Factor  affect sales and values? The answer: Three fold. First,  sales take longer. Second, marketing costs more. Third, asset brokerage and regional expertise are often needed.

Ross Dove

Managing Partner

Heritage Global Partners

Asset Advisory and Auction Services

A Legacy since 1937

Commercial Real Estate Auctions in Soft Markets

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We all know the volume of commercial property auctions swing with the macro real estate economy.  When the market is hot, real estate auctioneers often are put on the sidelines.  We look at the great listings on Loop Net and Co Star and say, “If we only had those properties in this market….” However, our business does not work that way.  When brokers are receiving competitive multiple offers, and buyers are eagerly trading up, auctions rightfully take a back seat.  The current economic cycle is bringing commercial property auctions once again to the forefront.  This paper will address several key components to guide sellers through the benefits and risks of commercial property auctions in less liquid and more competitive soft markets.

Point One:  Get your asset auction ready before marketing commences.

The highest probability of a successful date-certain sale is only achieved by sellers prepared to do the work up front.  Traditional brokerage provides for a myriad of contingencies on inspections: environmental, zoning, financing, plan permits, occupancy leases, and many more.  To be auction ready, this checklist and others must be addressed up front.  If a phase two environmental is required, the capital advanced prior to the auction marketing will pay dividends by affording bidders confidence that they have mitigated their risk.

Point Two: Know your choices, and make sure you’re comfortable.

Commercial property sellers have dozens of decisions and choices on both advisor sale terms and many auction formats. Whether to sell to the high bidder regardless of price, or subject to a minimum acceptable bid may be very different for a builder with personal guarantees than a lender facing a significant carrying cost.  There are dozens of different approaches, from selling subject to final confirmation to only auctioning to pre-qualified bidders. Each asset deserves its own unique plan.  If the building is a very customized asset, like a semiconductor fab with clean rooms, an open outcry auction may be too risky.  In this instance, there could be only one truly right buyer who will bid very aggressively in a sealed bid format.   At an open outcry event, the second high bidder may not advance the bidding to the one right buyer’s top bid.  The opposite impact can occur when you know there are several potential buyers, and the only sale barrier is price point, due to a soft or down market.  In this instance, assembling all the bidders at an open outcry event will often create both a sense of finality and a fear of loss that heightens competition.

Point Three:  Embrace the brokerage community.

Real estate transaction sales are complicated, and many buyers are reluctant to attempt risky due-diligence without a trusted advisor.  Heritage Global Partners always partners with highly respected commercial real estate firms, who in turn act as listing brokers, or work with the seller’s existing firm.  On each project, we advise our seller to offer a generous commission to the buyer’s broker.  This incentive achieves two important functions. First and foremost, the word of an available great asset on the auction block, travels fastest through the brokerage community and assures the highest exposure.  A second important function is that buyers represented by trusted brokers can leverage the due diligence process and can routinely bid with greater knowledge and confidence.

Point Four: Aggressive promotion is essential.

Auction ads are bigger than traditional listing ads when the seller and auctioneer decide to increase exposure and sale probability.  The commitment to large and frequent announcements creates a sense of urgency with buyers and demonstrates the seller’s intention of getting the deal consummated.  To quote Ted Turner, “Early to bed early to rise.  Work like heck, and advertise.”

Ross Dove

Managing Partner

Heritage Global Partners

Asset Advisory and Auction Services

A Legacy since 1937

Auction Methodology – A Guide to Sale Type Selection

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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

Build It or Buy It? A Case for and Against Outsourced Asset Management and Disposition

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The lessons learned over the years, along with the miles traveled, have taught us at Heritage Global Partners that no two companies are alike.  Each firm’s unique internal processes dictate their BPO agenda, strategy, and execution. We have seen very large multinational firms perform all asset functions from used equipment procurement to redeployment to disposition, and get excellent results from a completely in-house staff.  We have also witnessed huge improvements in execution and cost savings by others using a totally outsourced asset solution.  Hopefully this paper will address some of the relevant issues and factors that should ease the decision making.  There is no one size that fits all; often the best approach to asset management is a hybrid one, wedding outsourced vendors to an internally dedicated staff.  Each firm must do their own analysis of the internal resources and skills required and then bench mark against outside services to weigh the ROI.  There are three significant questions. Each with its own steps and procedures.

Question One: Do I have internal systems software services and staff in place today?

If the answer is no, then the first step in “Build it or Buy it” is to do an internal analysis of what’s missing.  Are we buying new tools for Plant A without visibility of Plant B?  Do we have warehouses of idle equipment from closed facilities?  Are we unsure of our asset values and potentially overburdened with taxes?  Is our book value too high?  Etc.  Each question will then dictate whether additional staff is warranted versus what outside resources exist.

Question Two: Will dedicated internal resources deliver maximum results at less cost?

This is always where the rubber meets the road and is often a tricky highway to navigate.  If you’re using internal remarketing and all your assets are selling to a handful of repeat buyers, you must question the process.  Ask yourself whether you are the market maker or are getting underpaid and allowing the reseller to make an aftermarket profit.  If so, at the very least select a good sample project, and outsource disposition to a sector expert.  Make certain your contract provides that they furnish the contacts of all interested parties.  In that case, you can chose to continue outsourcing, or at the very least leverage your new buyers to enhance future sales.

Question Three:  Does your situation require people or procedures?

In many cases, the systems are already in place, and the only thing lacking is sector expertise.  Oftentimes, we find a company with great enterprise visibility but no re-marketing expertise.  Generally this occurs when internal skill sets don’t line up with specific asset functions.  A good example is taking a procurement expert whose skill is in negotiating pricing on new tools and asking him to also sell idle equipment.  There is very little cross over between OEM purchases and remarketing in the secondary channel.  Like many situations, this warrants an inexpensive hybrid approach where you keep your systems, and outsource market making.  Clearly the opposite may occur where you need outsourced systems to identify and describe assets, but know your market and competition so well you won’t need sales support.

To decide whether to build or buy asset services, you must look inside and outside the same box.

Ross Dove

Managing Partner

Heritage Global Partners

Asset Advisory and Auction Services

A Legacy since 1937

Market to Market – Campaign Marketing Metrics for Maximizing Asset Recovery

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Everyone in our industry has heard countless auctioneers get off the podium and utter the unsatisfying proclamation, “It’s worth what it’s worth,” or when they say, “That’s all they would pay,” or even worse, “I got every dollar in the room .”

Great auctioneers have one charter: get all the money into the room.  Of course with technology advances, the room has expanded through the Internet and across our planet.  Often the asset class is better suited for online events, and we can’t always blame the auctioneer when your asset advisor shrugs his shoulders and says, “The market spoke.” He or she may actually be right.  Before you grin and bear it, make sure these six steps are followed, and always remember: the marketplace needs market makers.

Step One: Asset Knowledge. The beginning of all auction marketing campaigns start with understanding each tool.  It is critical to know how many are sold per annum.  Prior to commencing any ad campaign, find out if the asset is still state of the art or facing impairment from technological obsolescence.  Knowing the asset will define the marketing campaign and assure you the right bidders make a true market.  Proper research may tell you that your five year old nuclear magnetic reactor is not suitable for an expanding bio-pharma R & D firm, but there remains a vibrant secondary market to universities for training.  If the auction marketing missed the mark by focusing on the OEM and not the universities, then the asset was not truly marked to market.

Step Two: Know Your Audience. Today all of us are receiving ten times the emails and information we can possibly digest.  Each work day we are forced to decide what to read, what to save, and what to delete.  Can an email for used equipment make its way through that maze? The answer is YES if you know your audience.  Shotgun blasts to huge databases produce minimum results; however, maximum asset exposure produces true value.  An example would be the sale of a one year old Agilent Spectrum Analyzer.  Proper research told you to focus on bio-pharma and semiconductor users globally.  However, more detailed research on several websites gave you many other industries to notify.  The asset had spirited bidding, and the lab was outbid by a startup organic skin care cosmetic firm.  The asset was effectively marked to market.

Step Three: Know Your Competition. Remember, it’s always a buyer’s market in the secondary channel. On rare occasions assets are purchased used at huge premiums due to immediate availability, but the vast majority are acquired secondhand based on the savings versus buying new. It’s critical to know if the manufacturer has a trade-in program. Do they have refurbished tools competing with your asset? Are they a possible buyer?  Also, it is critical to understand the dealer channel.  Over supply diminishes asset value, but it can also work in favor of smart sellers.  When you hear a buyer comment, “I paid too much but I had to protect the value of my other ion implanters, you know you effectively marked to market.

Step Four: Make Sure You Connect. If you have ever had an auction with good assets and poor attendance, it’s not the market; it’s the marketing. When everyone throws their hands up says, “I don’t know what happened, we mailed the entire database and nobody showed up,” the reason may be very simple.  For example, you have one hundred generic fork lifts in a plentiful secondary channel.  Did your SEO ad just say forklift auction, and did your landing page do the same?  Either price, condition, immediate availability or close proximity must compel a buyer to your asset.  Seeing the ad is first, but did you connect?  Here’s how: “Highest quality and low usage assets,” “All maintenance records,” “Largest inventory at auction this year,” and many more.  Connect with your audience.

Step five: Make Sure Your Metrics Matter. We are all inundated with perceived key web metrics like page views, click throughs, and web traffic.  The dot-com days of eyeballs are in the rear view mirror; today it’s all about transaction metrics.  Telling the seller you’ve received ten thousand page views is not relevant without real metrics on the conversion rates from past campaigns, real metrics on new registrants versus database buyers, and the most important metric—buyer per asset.  Having a ton of landing page traffic could mean your PR was great and your site is flooded with curiosity, but not real buyers. Knowing your metrics per asset matters.

Step Six: Manage Your Spend. Maximum recovery is always a net number by a specific date.  “How much will I recover, and how long will it take?” are the central questions.  The central keys to managing your spend are the two critical T’s of spend management: Timing and Targeting.  If the market campaign is too short buyers can’t react, and if its too long the spending is not warranted.  It is crucial to know your target to maximize spend management.  Resellers and return companies need little time, but large corporations need approvals and more reaction time, as do both new and foreign buyers.  Lots of fast ads are great for some assets, but longer, slower campaigns are needed for others. The Two T’s, Timing and Targeting, should control the outcome.

Ross Dove

Managing Partner

Heritage Global Partners

Asset Advisory and Auction Services

A Legacy since 1937

Anatomy of an Asset Sale: Obtaining Maximum Value

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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