Best Practices: Liquidation Strategies for Telecom/IT Companies & the Benefits of Asset Recovery over Auction
by Jeffrey A. Jones and Jason P. Jellie, Apto Solutions Inc., Atlanta
Faced with liquidation, what is the most effective strategy for selling the assets of a technology-intensive company? The goal is clear: Recover the maximum dollar value for the assets in the shortest time. Before making a final decision, consider the following proven benefits of engaging an asset recovery specialist over conducting an auction:
- The value of all network equipment is inextricably linked to its configuration, which is typically not provided in great enough detail during an auction.
- Technology-centric companies usually use integrated multi-vendor platforms that require specific knowledge and expertise to fully understand in terms of capability and deployment.
- Knowledge and understanding of the equipment leads to specific buyers, often IT and Telecom Engineers. These buyers are not typically found at auction.
- Unless an auctioneer is intimately familiar with many different types of equipment, not only will he fail to extract its maximum value, he will also fail to attract the proper buyers to auction.
- The “as is where is” bid practice that occurs at auction impacts offers by 30–40 percent due to risk on the part of the buyer.
At an auction of technology equipment, one of two situations typically emerges:
- there is one consolidated lot sale of many different types of equipment, or
- there are several smaller lot sales, the lots having been broken up by the seller according to manufacturer (for example, one lot composed of all Sun Microsystems equipment, another lot composed of all Nortel Networks equipment, etc.).
Each case represents a forced liquidation scenario where two additional factors further diminish maximum recovery potential:
- Component details on particular pieces of equipment are not available
- Knowledgeable buyers are not present to properly evaluate the equipment
Take a quick poll of an auction’s attendees and you will find primarily dealers, even if the auctions are online. These dealers will purchase the lots, take them back to their shops, and break up the equipment for resale over the course of the next few months, reaping a tidy profit. Most buyers at a technology auction will expect to make a profit of between 50–75 percent within three months of the purchase.
The auction method leaves a lot of potential money on the table for creditors. Given that most creditors only receive pennies on the dollar when auctions are utilized, and given the fact that technology equipment is often worth millions of dollars and comprises the most valuable of assets owned by a company, it is surprising to those specializing in asset recovery when creditors opt for the auction route. If more creditors knew about the dramatic upside to using an asset recovery specialist, many more would undoubtedly be willing to wait a few months in order to realize the gain.
Enter Strategic Liquidation
Here are the general rules:
Engage an asset recovery specialist, or a “re-marketer,” as they are known in the industry, which can provide you with the following:
- Experience in the majority of the equipment offered
- A valuation of the expected monetary recovery
- A timeline on the expected monetary recovery
- A clear and concise plan for the removal, test and sale of the equipment
- Solid references
- Protection of the seller and its creditors from liability exposure related to the improper disposal of electronic waste (and this is an important point, not to be over-emphasized—market research shows that some enterprises have paid as much as $200,000 in fines for improperly disposing of electronic equipment)
All re-marketers are not equal, so be sure to engage one that can provide you with proven experience in bankruptcy liquidation, and evidence of having previously achieved the following:
- Court approved motions for hire and motions for sale
- Assisting counsel in the preparation of motions for the sale of larger ticket assets
- Guidance in preparation of a deminimus motion to cover many small ticket sales
- Reports for you to share with creditors
By targeting end users and dealers with an immediate need, a good re-marketer receives 100 percent of current fair market value. In a typical consignment relationship with a re-marketing organization, which is accomplished in asset recovery services as described above, where 65 percent of the proceeds go to the seller, and 35 percent of the proceeds go to the remarketing firm, the yield will be a 20 percent or greater gain to most sellers over the auction method. When you are talking about millions of dollars, it can add up quickly.