Strategies for recouping equipment and instrument investments
The business of science in our fast-moving 21st-century economy is seemingly in a constant state of flux. We read daily about, for example, start-ups as they grow (and die), large corporations that are driving growth through acquisition, businesses consolidating to streamline costs, and new technology that is stimulating companies’ expansion.
As a consequence, we increasingly see laboratory facilities relocating, expanding rapidly, or, in some cases, closing. Whatever the reasons behind a change, the process inevitably brings significant challenges. One element that needs careful consideration is what to do with the instrumentation and equipment that is in the laboratory. It’s likely that when the facility was opened, hundreds of thousands of dollars were spent fitting it out with the ideal equipment and instrumentation for its purpose—from delicate electron microscopes to simple water baths and balances. This investment needs to be protected. When correctly handled, a facility relocation or closure can offer a business a tremendous opportunity.
In this article, we explore how a specialist asset management partner can help recover as much of the investment as possible when the time comes to move—or close.
What have we got—and what’s it worth?
Initial and crucial steps to undertake are a thorough classification and valuation of all equipment. In a “closure” situation, this allows managers to get a clear view of the value that can be realized from the assets to be removed. For businesses acquiring or being acquired, a fixed value for lab assets helps inform negotiations. For a company that is rapidly growing, accurate valuations may be required for insurance or funding purposes.
When choosing a valuation service provider, look for a partner with proven experience and expertise in the industry, one that adheres to compliance standards and holds the appropriate credentials.
Top 5 things to look for when choosing a valuation partner
Choose a company with:
- A large database of private treaty sales and auction results to assist in accurate valuations.
- A global team of valuers, brokers, and chartered surveyors, including real estate experts who can offer customized valuation packages by service, need, or industry.
- In-house technical expertise in the assets being valued.
- Ability to prepare all documentation in line with International Financial Reporting Standards (IFRS), International Accounting Standards Board (ISAB), and International Valuation Standards (IVS).
- Expert valuation support for litigation.
Relocation and redeployment maximizes value— even under time pressure
Once a valuation is complete, it is possible to identify a strategy for sales and disposal and consider how this will achieve the best possible level of return. Sophisticated tools now exist to ensure visibility of the comprehensive inventory of surplus and idle assets. By keeping them in the business where possible and supporting their redeployment and utilization across multiple sites, a company will always realize the highest value. For those items that cannot be redeployed, selling them gives the next-best return on investment. In other cases, especially with older equipment, scrap may provide optimum value.
In most projects, a number of strands—redeployment initiatives, online marketplaces, competitive auction events, and clearance programs—are used together to reap the highest possible returns. A “value control” approach is utilized to manage this process effectively.
In certain circumstances, time is the critical parameter. It may be that a facility has been sold and must be cleared by a specified date to allow the new owner to take possession. Again, working with a specialist in this case can relieve considerable pressure. As discussed above, after redeployment, a sale is usually the nextbest option. Typically, this is carried out in one of two ways—a managed sale or an auction event. For lab closures where as much investment as possible needs to be recouped within a limited time frame, auctions are often the preferred approach.
Designing and managing a successful auction event depends on many factors. A specialist partner should advise on the right approach in each case, whether it be an online auction, live/webcast auction events, or sealed bid and private treaty sales. Innovation should be at work here—auction providers ideally undertaking active marketing of the sale, using expert knowledge of the equipment being offered to set price expectations, and offering flexible approaches to managing bids.
A good example of innovation in this area is the proprietary SmartAuctions™ package. In most auctions, if bidding does not exceed the reserve the seller has met, the asset simply does not sell. By contrast, during SmartAuctions, the seller can accept the highest bid during or after the event, even if it did not reach the reserve. This allows sellers to set high reserve prices because they can revise decisions when they have more complete information. Buyers actively bid on reserved items because they know there is still a chance they might win.
When there is more time available, a managed sales process provides another dependable channel. The rise of the Internet has seen the development of online marketplace packages to meet this need. When considering an online transaction, however, particularly for a high-value and complex piece of equipment, the human touch is perhaps still the most important factor. Using a vendor with specific industry experience combined with a solid reputation is crucial to success.
Innovative features to look for with online marketplaces include “top down” offers rather than the more usual “bottom up”: bidding model, expert evaluation of goods offered for sale, accurate setting of sale prices, and payment on results. In addition, by ensuring a concentrated promotion of the marketplace platform and, within it, advertising of specific equipment, lab managers can be sure that their equipment is being seen by the right people.
In every business, there are those assets that hold very little value and are best dealt with through clearance, by donations, scrap, and environmental recycling. Chosen experts should advise you of the scrap value of your idle equipment, presented with a comparison against the market value to sell it and with a recommended strategy that will generate the highest rate of return.
Thanks to the large number of options available—redeployment, sales, and clearance—a proactive asset management strategy can deliver an opportunity to recoup a significant portion of the original cost of equipment. Nonetheless, it is not without its challenges. It requires formalized processes, specialist knowledge of the industry and its equipment, dedicated resources, and a concerted effort. In the midst of a huge change, such as a facility closure, many companies lack the time or resources necessary to establish a successful program themselves. For this reason, the majority of companies undertaking this process successfully rely on a partnership with a specialist service provider.
Moving or closing a lab is never easy, but calling in an external partner takes some of the burden away from the organization and can streamline the process considerably.
Case Study: In one recent project, a Vancouver-based biotechnology company, known for developing ocular products to treat inherited retinal diseases, decided that they would consolidate – and that a facility in Menlo Park, CA would be closed.
The limited amount of time available to consolidate the facilities meant that consignment was selected as the best solution. An inventory was created, and instrumentation and equipment was expertly packaged and shipped from its original site to a warehouse in Canton, MA. Once it had arrived, equipment specialists created listings and began promoting the higher valued items on an online marketplace. Meanwhile, the lower valued ‘commodity’ items were filtered through monthly online lab auctions.
The Menlo Park facility was cleared of all surplus assets ahead of the planned shutdown date. After a little more than a year, complete sell on all 200 pieces of equipment was achieved - yielding $364,000 in equipment sales for the client.