Aug2021
"Today is an ideal time to spend some money and have my plant appraised," said no printer, ever. Regardless of whether you feel appraisals are worthless, today’s plant and machinery appraisal industry is substantial and essential, with trained specialists deployed in accessing and verifying plant machinery to determine condition and worth.
"Credible" is the keyword when preparing an assignment, just as is specific knowledge of a specific industry. I’ve been carrying out plant appraisals for over forty years, and, almost exclusively, for the Print Communications industry, although anything from 5-axis machine tools, to a winery, has been part of recent assignments.
There are good arguments in support of an appraisal. Banks and leasing sectors insist on a valid and certified opinion of value and often turn to professional appraisers or auction companies, most of whom offer this service.
Although it’s always possible to guess a value, lenders prefer professional evaluators who hold accreditations with an accepted appraisal society or foundation. Becoming an accredited appraiser requires industry experience, study, and constant training since regulations constantly change.
Nick Howard in Kansas City with Heidelberg XL 106
The joint U.S. and Canada benchmark standard involves a thorough understanding of USPAP. The Appraisal Foundation, a recognized source of appraisal requirements, developed USPAP (Uniform Standards of Professional Appraisal Practice) as a result of the savings & loan crisis in the early 1980s and is designed to tighten up the responsibilities and ethics appraisers must follow. However, USPAP doesn`t provide the appraiser with specific know-how on arriving at a credible conclusion but rather the proper procedures and responsibilities each appraiser must conform to. Essentially, it’s to ensure members deliver fair, balanced and truthful valuations which are void of misinterpretation or bias.
The need for USPAP and continual updating of rules and ethics took on new meaning during the sub-prime financial meltdown of 2008/2009, as it became painfully obvious that USPAP needed further revisions when thousands of real estate assessments, well short of the mark, turned out to be lacking credibility. Only after home foreclosures fell off a cliff did some funders discover valuations that were biased at worst, incompetent at best. Some local lending offices, in their eagerness to close mortgages, held rather unhealthy symbiotic relations with appraisal firms who didn’t understand the word `no`. As house values took flight no one considered that both the appraiser and bank played a role in what seemed “perpetual-motion” accounting. The dollar value index only pointed up: Today’s home at say $400K was tomorrow’s assessment at $425K.
For the appraiser, there is a great temptation to acquiesce when lenders and especially potential purchasers of a business make insinuating comments as to where they “hope” to end up and how they wish the valuation comes in at a number that will let a transaction proceed. Many of my appraisals have received some version of a preamble like this and in all cases, although I listen intently, it will never affect my ultimate conclusions. Impartiality is also why lenders have no interest in considering a manufacturer as an appraiser, even though the company may have produced the asset.
A particular example of this is in Canada. One of the world’s largest digital equipment manufacturers usually leases their equipment.
Nick Howard in Kansas City with a Dreissig bronzer
Nick Howard in Toronnto with Heidelberg Speedmaster
However, because of lower finance rates, printers are outright purchasing instead. This manufacturer’s contract has buried in small print a clause that precludes a buyer from actually owning the intellectual property (IP), even though the buyer owns the hardware. If that same buyer attempts to sell his machine (in Canada) the manufacturer will initiate hefty fees to re-certify and/or permit their software to be used. Not only does this severely affect a machine’s value, it generally kills any transaction unless the manufacturer is involved.
There are plenty of steps printers can take to maximize their asset’s dollar valuation. The initial appearance of the plant, offices, and machinery is important. If you keep a clean shop and machinery uncluttered, chances are this will be indicated on a report. Messy shops and filthy machines are a drag on valuations – particularly if the equipment is only a few years old. I recently appraised a two-year-old 140-inch Inkjet roll-to roll, particularly filthy with ink tanks and flushing tank looking as if someone had taken a gallon of ink and thrown it at the machine. Regardless of performance, poor housekeeping is often reflected in an appraisal.
Depending on the degree of an appraiser’s knowledge, it’s pointless to provide a “Walt Disney” tour, pointing out what you believe to be relevant about equipment. Often this is the case when I arrive at a plant. Perhaps the printer thought making a list would be desirable but rarely is it used: I insist on verifying everything myself. A funder upon receiving my plant appraisal, called up to query two assets which according to him, did not have the correct serial number. I double-checked and confirmed my document was indeed correct. This led to an earlier appraisal performed by a different company that had made the mistakes. The resulting mix-up went on to generate substantial work to re-register these assets; for if they had not caught the error the funder could lose all legal rights to the chattels.
Only after home foreclosures fell off a cliff did some funders discover valuations that were biased at worst, incompetent at best.
A large sheetfed manufacturer has been buying LCD sheet counters, since about 2002, with a flaw. These counters are installed to record the total impressions of a press, but when a three-dollar lithium battery is depleted, the counter’s display goes blank. This issue has been known for years and it’s a big problem. The total usage of a particular press is now unknown. If accurate (service) records are kept perhaps the technician wrote down the impression count. Today, I see machines of this builder with very low impression counts and know the reason. Usage is a major input to valuation dollars and opens up the potential for deceit if attempting to sell a very low usage press that may have twice as many impressions as advertised. Knowing how to access the overall condition is key for the appraiser as he or she has to be familiar with wear and tear.
Over the years, I’ve carried out assignments for various interests across North America. The majority have been lenders and businesses buying or selling to each other. But, I also have had some avant-garde files.
One rather memorable and with hind-sight slightly humorous episode occurred in the northwest United States, where I completed two appraisals for this State’s Department of Justice. Two of the largest printers were involved in litigation with the Department of Revenue over tax-related asset book values. On arrival at one of the businesses, a group of government staff and myself found ourselves sequestered in a boardroom awaiting a senior member of management who would escort us through the facility. It seemed as if we were in that room for hours and since a massive amount of work was involved I could sense delays in what was already going to be a long couple of days. We were finally given a frosty reception when the executive eventually turned up.
I went to work with the gaggle of five accountants and attorneys in tow, firing off questions in my direction. The plant was a substantial web and bindery facility and late in the day as we neared completion the executive turned to us and said “anything else?” I quickly mentioned the pollution control equipment and suddenly he opened a side door where we all shuffled out to a rear parking lot. Once outside he strode up to each of us and unsnapped our visitor passes- right off our clothing - while muttering “here’s the door: over there is what you wanted to see”. Without another word, the man spun on his heel and disappeared with the door slamming shut behind him. There we were, standing in a parking lot wondering what had just happened.
The west-coast file isn’t typical but did have one thing in common - plenty of variety, and if you love to travel then that too. Another assignment proved both when I was assigned to appraise the largest Printing operation in Atlantic Canada. This involved twelve individual plants spread across four provinces. Just the physical process of travel kept me away from the office for well over a week. The plants ranged in sophistication from large web, sheetfed, and bindery to small-town businesses. Hundreds of miles later I managed to complete the inspections and the file ended up filling several binders. Not only was each facility unique but the individual management styles varied, with some plants highly organized and using up-to-date management tools while others looked as if they were stuck in the 1970s. Just as I was to fly from Halifax to St John’s, a once-in-a-decade snowstorm hit Newfoundland and left me sitting around the airport for a day. A later flight to Gander had me asking which stall my rental car was in. With a smile, the lady told me to “just walk out to the lot and keep pressing the key fob”.
Impartiality is also why lenders have no interest in considering a manufacturer as an appraiser, even though the company may have produced the asset.
Whether it be one company buying another, a loan for a new piece of equipment, estate planning (especially if families and real estate are involved), or tax matters, a good appraiser, firm, with knowledge of Print technology, can handle the assignment.
Today, an appraiser must also be conversant with the myriad of new technologies constantly appearing on shop floors. For me, it’s obvious how our industry has changed so rapidly, as I appraise more digital (both inkjet, dry, and liquid toner) platforms than offset. The Large Format and point-of-sale business have blossomed and with it an increase in cutting tables and routers. The bindery has also changed considerably as traditional manufacturers of large signature work are purchasing lighter duty equipment designed for speed and short runs.
All this digital technology contains wide variables in value retention as compared to older traditional equipment of the 1990s. In many cases, depreciation is swift as suppliers plow massive resources into research and development, making even recently purchased equipment quickly obsolescent. This pattern will only increase because digital is the future. However, without a credible and accredited appraisal, there would be no possible way our financial sector could function with a sense of assurance and continue to support the printing industry.
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