Remarketing of assets is required to maximize recoveries, limit losses, and achieve the highest return on equipment investments. To maximize returns, it is important to understand and employ a variety of remarketing strategies depending on the equipment type and internal resources available.
The best strategy for selling assets to maximize recoveries depends first upon the type of asset being sold and the structure of your firm. If you have to sell three Macbook Pros once in a blue moon, and you have the internal resources to easily accomplish a sale, then using eBay and paying the 1%-2% eBay fee maybe your best option. If you are a leasing company that gets hundreds of laptops and switches and routers a month in lease returns, the highest and best use of your internal resources is likely to manage a third-party IT broker who has a big warehouse and can accomplish receiving and inspection and even bill backs to maximize your recoveries. For some expensive, specialized assets the best results can be often obtained by hiring an expensive broker and paying it 20% of the sales proceeds. The three primary methodologies employed in smart asset remarketing are brokers, contract remarketers, and consignments.
A broker is an entity that sells an asset without taking ownership or possession. Since brokers take no ownership risk, they earn their money by charging fees to the seller, which typically amount to 2% – 25% of the asset sales proceeds. The brokerage fee charged depends on asset and market and geographic complexity, market liquidity and efficiency, and other factors which contribute to the difficulty of the sales task. If you are a large organization with ongoing needs to remarket a variety of equipment types is generally makes sense to maintain relationships with – and a database of – equipment brokers across a variety of industries, markets, and/or geographies. Maintain a list of, say, 100 brokers, from IT brokers to machine tool dealers/brokers to corporate aircraft brokers. And a win-win two-way street is the only sensible way to manage your broker relationships. Your brokers will love you and will help you value equipment when the front-end need arises if you keep them happy – feed them – by periodically giving them equipment to broker/remarket. No one likes to work for free; if you don’t give your broker equipment to sell every once in a while, there will not be a win-win mutual business relationship.
A contract remarketing relationship is a formalized agreement spelled out, for, say, a three-year period, in which a company that has a dozen assets a month in a certain class that requires remarketing forms an agreement with the contract remarketer, which is a broker or dealer, to sell the assets and share the sale proceeds. Contract remarketing agreements make sense and maximize returns for the asset owner/finance firm and for the contract remarketing company.
The highest and best recoveries for the sale of assets can often be achieved by formalized, written consignment agreements. This generally leverages what each party does best – uses the balance sheet of the big bank, which it is really good at, and the sales skill and specific industry and market knowledge and capability of the broker who does the selling. The beauty of this relationship is that the interests of all are aligned – everyone wants a higher sale price, and everyone makes the most money this way. Brokers generally have smaller balance sheets and can’t afford to pay $100,000 for a machine that might take a couple of months to sell. And if the machine owner, the bank, has $50,000 into a machine then it does not make sense to sell the machine to a broker who knows the market cold and would be willing and able to buy the machine upfront for $60,000. With a smart consignment agreement, the broker sells the machine for $200,000, the bank gets $160,000 and the broker makes $40,000. If the broker buys the machine from the bank for $60,000 and sells it for $200,000, he makes $140,000, but will generate ill will with the bank if the bank finds out how it was robbed in the deal. The broker wants profitable long-term relationships, so it does not want to appear to be cheating the big bank.
Contract sales company
In certain, though rarer, circumstances, a company has an ongoing requirement to monetize /recover money from the sale or disposal of assets for which they don’t want the hassle, expense, or trouble of brokerage sale or consignment sale. This may happen when the dollar amounts are small or it’s just too much trouble to administer brokerage or consignment agreements. Just pay me $200 for each copier return and you deal with selling it, refurbishing it, I don’t care just make these assets go away. Another example is if a company gets a bunch of wrecked cars it has to monetize, just sign an agreement upfront to sell all of these cars for scrap metal rates of $2/pound.
Conclusion: Smart Remarketing
It is the job of the asset manager, or some agent or delegate or representative thereof, to maximize recoveries and remarketing proceeds. The asset manager selects the remarketing process based on a wide variety of asset variables – ticket size, geography, specific market/technology, internal resources and capabilities, strategic considerations. In any case, you want to maintain productive win-win relationships with a lot of brokers in the markets within which you operate.
Mr. Nugent is Managing Director of Bluechip Asset Management, an appraisal and asset management services company. Mr. Nugent has over 25 years of experience in valuation, leasing, and financial services, focusing on equipment appraisal, residual management, asset remarketing, and portfolio management, including positions with Key Equipment Finance, Babcock & Brown, Comdisco, US Leasing, and other companies. Mr. Nugent has equipment management expertise in IT, healthcare, technology, semiconductor, energy, business equipment, construction equipment, and a variety of other industries, and has managed staff and transactions in the US, Europe, and Asia.
Mr. Nugent is an Accredited Senior Appraiser of the American Society of Appraisers. He holds a BA in Statistics from the University of California, Berkeley, and an MBA from Santa Clara University.