The valuation and disposal of inventory requires a deep understanding of the business and specialist exit planning skills to maximise realisation from an insolvency process
The traditional asset valuation and disposal business has changed dramatically in recent years as UK plc moves from a manufacturing economy to a service economy. Traditional assets such as machinery and equipment and freehold property are often replaced by industrial and consumer inventory and intellectual property such as IPR, trademarks and domain names.
The role of the traditional valuer has evolved into that of a professional advisor, who must understand how to value and sell these changing asset types. This requires in-depth understanding and intensive management to ensure the maximum realisation for creditors.
Take inventory, for instance. The valuation requires a unique combination of business analytical skills, accountancy knowledge and workout experience to arrive at an accurate realisable value.
The disposal of inventory requires strong sales and negotiation skills supported by a deep understanding of work-out channels, whether it’s selling inventory at a discount to the existing customer base or selling to a competitor or other buyer via the private treaty, online auction or live auction sales routes. The exit plan should map out the exit period, key staff to be retained, control of infrastructure, existing customer service issues and discounting strategy.
The work of the restructuring professional is complex and time-consuming, and there are onerous implications if potential problems are not swiftly identified. It is important for the valuer to work closely with restructuring professionals to provide accurate valuation advice and implement the disposal strategy, maximise the value of recovery for creditors, and establish value and title throughout the sales process.
At the very least, they should expect from the valuation professional a deep understanding of the following:
- Familiarity with the fabric of the business by being embedded with the sales team.
- Accounting knowledge of costing, margins and inventory turn.
- Inventory profiling, dynamics, mix, ageing and slow-moving, and obsolescence.
- Customer profiling, concentration, branding, royalties, licenses, ransom value and contractual issues that impact on receivables collect-out.
- Retention of title and supplier issues such as liens, ransoms and obstacles.
- Goods in transit feasibility analysis.
- Detailed exit strategy with appropriate costing.
- Alternative storage solutions in case inventory needs to be moved quickly out of existing locations.
Early implementation of a proactive exit strategy and structured sales process is vitally important, as value can be lost very quickly. The exit strategy could involve an Accelerated Inventory Realisation (AIR) programme, whereby slower-moving fringe inventory is sold whilst the restructuring professional sets about selling the business. The sale of fringe stock maximises the return on this inventory while providing cash flow to the business, yet retains maximum value in the core inventory, thus making the business more appealing to potential purchasers. However, if the business fails to sell, the sales structure and processes are already in place to immediately sell the core inventory, thereby optimising value.
As with all market valuations, as well as a deep understanding of the asset, the key is disposal experience, as this helps provide sound advice on the issues, challenges, opportunities and realisable value.
The next time you, as a recovery professional, engage a valuation expert to value inventory, take stock and ensure the right partner is instructed to provide the correct advice and expertise to help you achieve the maximum realisation for creditors.
Simon Morgan fnava
SIA Group Aviation, M.D.
+44 (0) 1273 621317 Direct Dial
+44 (0) 7976 685473 Mobile
SIA Group, Director
+44 (0) 207 498 4903 Direct Dial
+44 (0) 771 279 0744 Mobile
Matt Earl mrics
SIA Group, Director
+44 (0) 207 498 4905 Direct Dial
+44 (0) 743 236 6064 Mobile
About SIA Group:
Formed in 2003, SIA Group provides specialist asset valuation, advisory and disposal solutions to serve the restructuring and recovery market, asset-based lenders, banks, private equity firms, financial institutions and corporate entities. The group includes SIA Advisory Services, SIA Aviation and SIA Auctions.
SIA Group provides a comprehensive range of valuation and disposal services for all types of assets including machinery and equipment, inventory (stock) including the unique Accelerated Inventory Realisation (AIR) programme, accounts receivable, intangibles and property for restructuring and recovery purposes.
SIA Aviation provides a specialist aviation service offering to restructuring professionals and finance houses.
The team is comprised of qualified valuers, insolvency agents, aviation lawyers, pilots and ground crew, and has the ability to provide a one-stop solution. The company has specialist aviation PI cover and operates from its own purpose-built hangar with the ability to fly and store aircraft on site.
SIA Auctions provides a range of auction disposal solutions including live auction sales from our auction house in Brighton and sales via online auction.
SIA Advisory Services provides a distinctive range of valuation and loan collateral services for asset-based lenders, private equity firms and financial institutions.
For further details please visit www.sia-group.co.uk