Bank & Lender Liquidations of Machinery & Equipment: Challenges & Solutions
Liquidating Machinery Assets
Introduction
Sometimes a bank, lender, or leasing agency finds itself in a situation where unfortunately the inevitable solution in a troubled asset circumstance is a full liquidation of furnishings, fixtures and equipment assets. While equipment and machinery may have a high book value, there are several challenges to realizing any meaningful recovery on machinery assets. First, although they may be listed on the books at a high-value and have high replacement costs, the actual worth in a liquidation, and especially a forced liquidation situation, is likely far less than initially hoped. One of the major reasons for this is the cost of machinery removal and transportation. Whether at an auction or other means of sales, the cost of removal of the equipment in one manner or another is usually passed along to the buyer. Let’s look at those challenges and their costs:
- Machinery Removal
Many machines are bolted to a concrete floor and the bolts need to be chiseled free of the concrete floor before removal. Additionally, there is electrical wiring, compressed air, and in some cases water and chemical line supply disconnects that have to be done as well. All of this must be done safely, without damaging the equipment.
- Building & Equipment Deconstruction
Additional costs may include partial dis-assembly of the equipment before moving, and sometimes extreme measures such as removing a wall or roof section may be required to actually get the machine out of a building.
- Shipping, Rigging, & Transport
The considerable weight of most machines -- from 400 pounds up to thousands of pounds in the case of CNC machinery -- causes high removal and moving expenses. For larger equipment, vendors known as machinery riggers are used. This is a service where machinery is removed -- often lifted by crane onto a flatbed truck for transportation. Other requirements to move machinery may entail a forklift or some other form of lift.
Summation
All these costs are substantial and diminish the returns the lender can expect on a liquidation. For example, a typical 15,000 to 20,000 ft. facility equipped with the usual machines likely will have a machine rigging and moving costs of $100,000 to $120,000, typically $6,000-$10,000 per machine. Spread over the cost of the loan situation, this may be daunting.
What are some solutions?
If at all possible locate a buyer is willing to make a “lump sum" purchase of all equipment in place, as is, all costs of removal to be paid by the buyer. While this offer may not be as high as desired on one hand, the amount of time, money, and sheer aggravation to hold an auction for each piece may be cost prohibitive.
Alternatively, find a buyer for the entire business by means of an asset purchase, even if it's at a substantially reduced amount. There may be an asset purchaser willing to buy manufacturing rights, customer lists, assume new real estate leases, purchase the building and/or take the equipment over. While this is highly desirable is more difficult to find may require the services of a business broker or other liquidation specialist.
Other options include using an equipment broker that will sell the equipment by each unit individually and pass the removal cost along to the buyer. Naturally this results in less return, but gets the task accomplished with possibly slightly higher returns. Lastly, the most common form of liquidation is the specialist auctioneer for the whole inventory, a one-time option for the equipment. All the issues and costs still apply in this situation, plus auctioneers’ costs.However, a good auctioneer can move swiftly and capably to get your maximum return for these liquidated assets.
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