The value of assets has always been an essential component of M&A negotiations and in attracting investment. Companies, and their stakeholders, need an accurate and supportable valuation to manage their critical financial decisions and negotiations. Lenders need to deeply understand the collateral and its use before they make funds available.
Putting a value on a business’ assets is a skilled and nuanced task, with values impacted by a range of factors, local and global – including supply chain availability, routes to market, consumer behaviour, government policy and economic buoyancy and confidence.
As you would expect, the pandemic impacted asset values, just as it impacted so much else in the world of business. So, as we emerge from the depths of the COVID crisis into the post-pandemic world, what does the landscape now look like for asset values? How have values been impacted and what are the implications for the future.
Hilco Global are experts in asset valuation, helping businesses to understand the value of, and monetise their assets. In this article, we share our observations from working with client organisations around the globe, about P&E asset values in 2022 and beyond.
Our primary observation is that the post-covid economic environment saw higher prices paid for used P&E assets on the market, followed by higher value opinions established by valuers. This will benefit both borrowers and lenders.
Since the second half of 2021, when the pandemic lost its initial sting, the market (in Australia and globally) has seen significantly higher prices paid for used P&E assets. That of course is not unique – and we have certainly seen periods of higher values before. But what is different this time is that whereas higher used equipment prices would typically be anchored by correspondingly high prices for new equipment, that was not the cause of the current valuation spike. In fact, prices for new OEM equipment were steady, a function of customer relationship management and lag time in passing on cost increases. OEM manufacturers are not typically opportunistic and are certainly hesitant to be branded as such.
The used equipment price spike
Rather, the higher used equipment values in 2022 are a function of:
Lack of equipment supply
Lead times on supply of new equipment
Current economic activity
Uncertainty in the future (Companies buying old over new)
Our observations of the market lead us to believe this dynamic will be in place for some time – promoting continued higher used prices and valuations.
New equipment prices
Having said that OEM manufacturers are not opportunistic, and did not ramp up prices during the pandemic, there are factors that are now clearly increasing the cost of new equipment – inflation (in commodity prices, downstream steel products, labour and fuel) is starting to push up the price of new equipment, which will only combine with the post-covid factors to keep used equipment values high.
Impact on borrowers and lenders
This is good news for companies wanting to borrow against their assets of course – higher valuations provide them with greater availability and access to cash albeit at higher interest rates. They can leverage their assets to fund increased investment for business growth.
For lenders, the emphasis is very firmly on the need for accurate valuation reports to give them confidence in providing the investment to support these businesses. We have certainly seen an increased demand for timely and accurate collateral valuation reports that support negotiations and provide lenders with deep insight into the asset class and the associated risks facing the business and industry within which they operate.
Valuations in the ‘new normal’
The pandemic turned the business world upside down, and even as we move out of the crisis, we can see that things are very different to ‘life before COVID’. The economic landscape has changed, and we’re living in and learning about the ‘new normal’. Part of that new normal is changing asset values.
Hilco provides support for clients understanding their assets and their value on your balance sheet.
Greg is regarded as both a highly effective business executive and market leader in developing the right solution for clients. Well known for his calm and thoughtful approach, combined with his ability to interpret financial information with judgement involving the most complex situations, Greg aims to find a creative pathway to the right solutions for his clients. Clients know Greg drives outcomes that consider their wider business objectives.
Andrew brings almost 20 years of business development experience in his tenure of his professional career. He has an in-depth knowledge of origination and strong financial oversight in structured financing and corporate lending. Andrew has been responsible for originating corporate financing solutions, managing client portfolios, developing strategic relationships, negotiating contract terms and conditions, underwriting and financial analysis for many complex Asset Based Lending (ABL) and commercial transactions. Prior to joining Hilco, Andrew most recently served as a sales leader with HSBC and previously held business development and originations positions at GE Capital where he was responsible for Asset Based Lending solutions.
Ray brings more than 25 years of business development experience in his professional banking and trading career. With in depth knowledge of origination and strong financial oversight in the structured financing and lending space, Rayhas been responsible for originating various debt markets and trade finance solutions, managing client portfolios, developing strategic relationships, negotiating contract terms and conditions, as well as underwriting and advising financial solutions for many complex commercial transactions. Prior to joining Hilco, Raymost recently served as Business Development Head – Asia region for Triterras Fintech Pte Ltd, and was responsible for originating new business, negotiating commercial contracts, as well as assisting Distribution Team with the structuring of trade financing deals.
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