Posted: 12 Feb, 2019
Last Wednesday Gordon Brothers hosted the latest TMA event in London, with the topic – “Past, present and future of appraisals”
Duncan Ainscough, Neal Weekes and Mike Sanderson, who between them have over 75 years’ experience as valuers, took to the stage to share their combined experiences of working in the appraisal business as well as their views on the future of the Industry.
As we are all aware, a number of asset classes exist, but for the purposes of the talk focus was placed on Plant & Machinery and Inventory. Neal spoke briefly about the various methods of valuation – Depreciation, Income Method and Market Value, the emphasis here being on the most tried and tested, comparable method – Market Value.
Neal regaled tales of valuations during the 80’s when everything was manual. You were limited for information and physical research was necessary, via the Yellow Pages, attending live auctions and phoning dealers and manufactures. During the 90’s and the rise of the internet, with the adoption of Excel and database software, auctioneers started to digitally capture sale information. You could now access a pool of auction and private treaty sale results, providing you with searchable records of important used equipment values. What’s more, you had access to buyer information. Duncan explained that up to this point buyers were traditionally in the UK, but as things moved online it pathed the way for new buying economies, firstly Eastern Europe and then Asian countries such as China and Korea. The Global market opened quickly once online auctions became the norm, and online equipment brokers emerged. The consideration of regulatory compliance was of greater importance as more and more used equipment was exported.
Today, Gordon Brothers has the one of the largest databases of used equipment sales data in the world– Proofbox. It contains over 6m records of asset values gathered from auctions since it was created in 2004. In 2018 alone, Gordon Brothers collected data from over 300 auctioneers from 20 countries.
Duncan expressed that too little information or not knowing how to interpret data values can lead to inaccurate appraisals. You need a spread of information to glean a true picture. Knowing how to interpret data accurately led on to further considerations that Gordon Brothers include when providing appraisals. Company information, export/import controls, current market conditions and exit strategy are all vital considerations when valuing assets.
Evolution of ABL
Mike Sanderson, Gordon Brothers expert inventory and accounts receivables valuer, provided an overview of the evolution of inventory Asset-Based Lending (ABL). Already well established in the US, US ABLs entered the UK market in the late 90’s, initially offering inventory loans alongside traditional invoice finance facilities. At this point little consideration was given to the actual product and potential recovery. Up until the recession in 2008, few lenders had needed to ‘collect out’ against inventory as a funded asset. After the recession valuation firms started to recruit experienced ABL’s and expanded their offering to include lender specific issues, such as Retention of Title and its impact on recoveries and systems/data testing. As such, a typical inventory appraisal today would offer Gross and Net recovery rates, as well as recommend ineligible inventory and reserves required, which feeds into the lenders borrowing base. The team at Gordon Brothers, including the analysts and Corporate Recovery, along with the Proofbox database, market indicators, understanding the customer base and the company’s competitors, allow them to determine the exit strategy. Furthermore, their report will always provide the client with key recommendations they must consider. Not only can Gordon Brothers value assets, but at times, has been invited into transactions to act as 2nd lien.
So, what does this mean for the future…in terms of ABLs, with improved data flow, we are likely to see more detailed and frequent recovery updates. Lenders can be comfortable that they are funding the right stock at the appropriate level for that time of year.
Will there be an appetite to lend against other asset classes? Over recent years we have started to see the emergence of Brands & Intellectual Property as an asset to lend against. Gordon Brothers has already provided several brand valuations and in turn lent against the asset. They are comfortable with brands having previous owned Polaroid, Ben Sherman, and recently acquired Bench.
The impact of technology on appraisals will obviously continue, but to what extent? As discussed, data is more readily accessible, but you still need experienced and qualified valuers to accurately interpret that data. Most valuations will involve the Gordon Brothers team going out onsite, physically seeing assets and touching them, no amount of growth and computer support is able to replicate that.
Duncan Ainscough | +44 (0)7785 221 919 | firstname.lastname@example.org
Neal Weekes | +44 (0)7836 226 670 | email@example.com
Mike Sanderson | +44 (0)7918 766 942 | firstname.lastname@example.org
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