participations a slice of a discussion
t
his corner of The Secured
Lender invites you to
eavesdrop on a conversation
taking place between several
industry players about a
different topic each issue.
Pull up a chair and find out
what Hilco’s Arnie Dratt, Tom
Scotti of Gordon Brothers
and Accuval’s Rick Schmitt
have to say about how the
economic downturn and
credit crisis has affected
the valuations business for
lenders and appraisers over
the last 18 months and hear
their expectations for 2010.
BRIAN COVE, EDITOR-IN-CHIEF,
THE SECURED LENDER: What impact has
the economic downturn had on the ability
of valuation professionals and valuation
firms to accurately put values on assets
and collateral, particularly for asset-based
lending deals, over the past year and a half?
ARNIE DRATT, EXECUTIVE VICE PRESIDENT,
THE HILCO ORGANIZATION: I think, Brian,
the answer to your question in some
respects depends on how the appraisal
firm is structured and how it goes to
market. And each of us on the call today
has a slightly different footprint both
globally and in terms of the assets that we
value and their scope.
At Hilco, we have operations in the
United States, Canada, Mexico, and Europe, which do the same things, but with
slight variations. Wherever we value
assets, we also tend to trade in them in
one respect or another.
So, for example, in machinery and
equipment, we have industrial liquidation groups in four countries. In the aggregate, they conducted approximately
175 auctions in 2009. We also have a
group that buys brand names, so we
have a group in Hilco Appraisal dedicated to valuing trade marks and trade
names. The same for real estate and
accounts receivable, just as I mentioned
machinery, equipment and inventory.
Clearly, it has been more challenging
to value assets in the past 12 months. Take
machinery and equipment for example.
Macro economic forces have caused many
asset categories to plunge in value. That
said, in addition to extracting valuation
data from historical databases and, in the
case of machinery and equipment, dealers,
our real-time ability to tap into the sale
data of Hilco’s own auctions and negotiated sales has given us a more accurate
view of current market values.
If you look further at particular asset
categories, you’ll find, I think, that in the
machinery and equipment world, there
were assets that literally had no value
at some period of time during that first
six months of 2009, while other assets
had dropped 30, 40, 50 percent in value.
There’s a further story to tell, which we’ll
get into later on, and that is how some
of those assets have recovered.
TOM SCOTTI, PRESIDENT & PRINCIPAL,
GORDON BROTHERS GROUP, LLC: At
Gordon Brothers Group, we work with
manufacturers, distributors and retailers
to unlock liquidity on both sides of their
balance sheets. While our heritage is in
retail, our expertise extends across all
consumer products and industrial sectors.
Each year we buy, lend against or invent in
over $10 billion worth of brands, inventory,
machinery & equipment and real estate;
we also appraise in excess of $40 billion
worth of assets.
Gordon Brothers Group has been
around for over 100 years. That means
we’ve valued all classes of assets in all
stages of economic cycles. In this particular cycle the issue is one of demand,
and in the first half of 2009 the ability for
any of the valuations professionals to
measure actual demand in the marketplace was a real challenge – essentially
for two reasons. First, even though there
may have been a lot of deals available
in the market, demand was subdued
dramatically because most retailers,
including the off-price retailers that
typically jump on deals, had constrained
budgets and their open to buy dollars
were virtually nonexistent because of
the economic downturn. And secondly,
in some sectors, there were considerable capital constraints that further
limited purchasing power and, without
the access to capital, it was impossible
to take advantage opportunistically
of those types of buys. So it really was
a two-prong issue: People pulled back
themselves, but also their lenders pulled
back and the limited access to capital
also constrained demand.
