advertising section Convention sponsors
CRAIG CAPPALLI, ASA,
CEA, VICE PRESIDENT –
MACHINERY & EQUIPMENT
Time for a machinery and equipment
(M&E) appraisal? Then you’re probably
thinking about fee. But instead of letting
price alone influence your decision-making process, think of what you can
expect from your appraiser — and what
critical information your appraiser can
give you now that will also assist you
down the road. Consider these four key
details, to start...
The first step to finding an accurate
valuation is understanding why the
appraisal is needed. That will dictate what type and what value(s) are
needed. For instance, asset-based
lenders typically require a valuation
as supporting documentation for a
collateral-based loan. But an acquiring party would use the valuation for
negotiation or financial reporting, and
therefore be subject to audit review.
An appraiser will fine-tune his or her
approach based on the circumstances.
Future needs also can come into play.
In certain situations, it’s in a client’s
best interest to request prospective
or future values, when the M&E assets
are part of a lease transaction and a
pre-determined end-of-lease value is
an important aspect in negotiations.
Prospective values are best developed
when based on actual past performance
data. Prospective analysis will identify
assets that exhibit rapid technological
obsolescence, as opposed to typical and
more gradual year-over-year depreciation of long-lived assets.
After you explain your needs, it’s the appraiser’s role to offer guidance about the
proper premise of value selection. For
instance, when appraising a standard
machine tool shop, it might be far more
appropriate to use forced liquidation
value, rather than orderly liquidation
value. The shorter liquidation timeframe
minimizes sale costs while controlling
advertising, labor and facility holding
costs, resulting in higher realizable proceeds to the secured party or seller.
For the secured party, it’s common to
have the appraiser conduct cost-of-sale
analysis in determining not only the
gross liquidation values, but also the net
(net of sale expenses) values. This type of
analysis should further reduce potential
exposure to the secured party in the
unfortunate event of a default.
Besides relevant past experience for the
asset pool in question, it’s extremely
important for your appraiser to con-
sider quantity, difficulty of removal and
even geographic area of the M&E. For
instance, when valuing a single plastics-
processing facility with 20 injection-
molding machines, the estimated values
inevitably will be stronger than a valu-
ation of 10 similar manufacturing facili-
ties that would contain approximately
200 injection-molding machines. Or for
a textile producer, machines situated
on multiple floors within an old mill will
assuredly realize lower proceeds than
the same type of assets installed on the
ground floor of a modern mill.
Each valuation is truly unique, and an
appraiser will need to treat it as such.
Expect your appraiser to discuss the following with you during scoping:
◗;The purpose and use of the valuation.
◗;Availability of prior valuations and
fixed-asset listings from the company.
◗;What industry is reflected in the asset
pool, how standard or specialized
the assets are and how prevalently
they’re sold on the market.
◗;Whether desktop analysis could
complement traditional inspections
to save fees, when multiple facilities
and a large asset group exhibit duplication.
◗;The anticipated type of recovery, in relation to the asset pool (type and age).
These strategies, applied rigorously,
will help clients ensure that the right
appraiser is hired. Seek out appraisers
who are willing to take the time up front
to help you understand key valuation
concepts and considerations and how to
define the project scope.
Mr. Cappalli has valued machinery and
equipment for more than 25 years for
secured lending, financial reporting, property
tax and litigation purposes. He is an Accredited Senior Appraiser and a Certified
Equipment Appraiser. Mr. Cappalli is based
in New York.
BEFORE HIRING A
AND IT’S NOT FEE