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.
Ben Roden
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.
Higher Prices
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.
For companies wanting to attract investment or enter M&A negotiations, it’s never been more important to understand the shifts in the market and have timely and accurate valuations, so that they can realise the full potential of their P&E assets.
Hilco provides support for clients understanding their assets and their value on your balance sheet.
This website uses cookies so that we can provide you with the best user experience possible. Cookie information is stored in your browser and performs functions such as recognising you when you return to our website and helping our team to understand which sections of the website you find most interesting and useful.
Strictly Necessary Cookies
Strictly Necessary Cookie should be enabled at all times so that we can save your preferences for cookie settings.
If you disable this cookie, we will not be able to save your preferences. This means that every time you visit this website you will need to enable or disable cookies again.
3rd Party Cookies
This website uses Google Analytics to collect anonymous information such as the number of visitors to the site, and the most popular pages.
Keeping this cookie enabled helps us to improve our website.
Please enable Strictly Necessary Cookies first so that we can save your preferences!