As reported in the Australian Business Review, this year Australia has seen the lowest rate of companies falling into insolvency since 2008. The analysts, FTI Consulting, expect insolvencies to continue to trend downward at least through early 2017. Whilst insolvency is at an 8 year low we have seen some of the largest closures and receiverships in recent years in retail, mining, mining services and hospitality. DickSmith, Payless shoes, Pumpkin Patch, Masters Hardware, Arrium, HHA, Macleese, Allstates Hire, Keystone Group to name a few…
What does this mean to auction companies and brokers?
For auction and advisory companies like Pickles, as well as the individuals and corporations that buy stock from companies like ours, this decline in insolvency naturally results in a reduction in available assets, particularly compared to two years ago. However, it also presents a business opportunity to emphasise the importance of intelligently dispositioning, marketing and valuing these assets. Auctioneers have had to become smarter about disposing and marketing assets to achieve maximum returns for creditors. As an industry, we have the opportunity to focus on where we add value for current customers and future clients.
There are several areas on which we are focussing:
● Marketing on multiple channels. As most of the larger receiverships that have taken place this year have been in the mining and retail industries, we have focused on tailoring our marketing and dispositioning to the most appropriate channels for those goods. Utilising various disposal methods beyond a straight forward auction campaign. This can include EOI, tender, overseas alliance and brokerage in addition to straightforward auctions, both onsite or at a Pickles branch. There are industries where equipment is commissioned inside a factory and may lose half its value if removed. In general, assets sell better in their own environment, but there are cases where landlord constraints prevent onsite auctions. Every case needs to be judged on its merit and circumstances.
● Understanding valuations and market pricing. What determines the price? No two cases are the same, however as history shows, the price is determined by what the market will pay. Each market is different and expected valuations will differ. What we have seen recently in retail is quite different to what we are seeing in mining and hospitality. Some large retail matters have resulted in closures and hundreds of staff losing jobs. Other matters in the hospitality space has resulted in a business restructure and sale whilst in the mining space we have seen some large parcels of assets broken up and sold to “tailor fit” companies seeking such specific assets. In this case the assets have achieved close to market value. Every case is different…
As an industry, we need to acclimatise and be smarter about how we offer our services. As auctioneers, valuers & advisors, our role of “cog in the wheel” of all our current customers and future clients is evident. Knowing how to best assist a business sell down underutilised assets and liquidate cash back into the business is paramount to the final outcome of their returns. Our valuation services are some of the best in the country, and an invaluable tool that can be utilised to gain a real understanding of the value of their plant & equipment.
● Being a trusted business partner. We can add far more value than simply liquidating the assets of insolvent businesses if we are engaged in the day-to-day operations of the business. The importance of valuations is immeasurable. By becoming involved in discussions with banks, IPs and their clients, we can assist a business in selling down underutilised assets to liquidate some cash back into their operations.
Our valuation services are best in class and can be utilised by these banks and their clients to get a real understanding of the value of their plant and equipment. Often, it’s a higher value than any property holding the client has. By enlisting Pickles valuations team earlier in the lifecycle of a failing business, decisions can often be made around values of assets and the disposition of assets that are not required to unlock equity, inject cash and get the business back on the right track. It is an important tool when utilised in anticipation, while the business is still in a good position to restructure.
As the aforementioned Australian Business Review article also cited, one reason for the declining default rate is that banks now are working more closely with their clients when problems are identified, preferring less formal options. At Pickles we are in a unique position where we can offer value and assist clients with refinancing options, unlocking equity by appropriately valuing their assets and dispositioning them for guaranteed returns.
Find out more about Pickles Auctions' valuation services here