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M&A Seller: Fixed Assets

"What can you possibly do to improve fixed assets in prep-for-sale?”

Manage the portfolio better… maintain the equipment … organize the equipment for most effective use…

Buyers acquire future earning capability.  A well-organized, well-maintained fixed asset portfolio is the basis for future profitability. Fixed assets include all plant assets – whether owned or leased. Leased assets are included, since if properly used in the operation, they will contribute to future profitability.  Let’s examine leased and owned assets:

Leased assets:  Factors that affect business valuation would include, serviceability (condition, technical obsolescence, utilization) and length and terms of the lease.  A well-managed leased asset will have a reasonable utilization ratio, and be technologically consistent with the company needs.  Some examples…

If you have a long-term leased production facility that is nearly 100% utilized, this is a potential cost to a buyer. Relocation and lease termination costs may be expensive, and these costs will be considered in a valuation.  Examine your leased asset portfolio from a potential buyer’s point of view and position your lease portfolio to their best advantage, ideally without excessive cost (e.g. negotiate an option on additional space…). Match the service requirements to the lease terms …

Leased assets also include software licensing. Is your software on the current release? If not, an upgrade is additional cost. Is the license agreement due for imminent renewal?  Again, view the agreements from the position of the buyer, and lease accordingly. 

Owned assets:  Similar to leased assets, these should be in good working condition, technically appropriate to the business, and reasonably utilized.  There is little worse than a facility tour through a factory filled with filthy equipment covered in years of grime; broken and excess equipment littered randomly throughout the facility. 

Maintain it… clean it… paint it … sort and dispose of excess and obsolete equipment.  Make sure that your maintenance and records are up-to-date. Be proud of your physical facilities, and demonstrate good management.  

As you prepare for sale, review the assets in priority order.  Those of critical significance should be assessed first, which may also improve current profitability. 

In both owned and leased assets, ensure that you can tell the story behind all major assets – including the small production facility inNo-Where South Dakota.

As a buyer, one of the many informal signals I observe during a walkthrough is the organization and presentation of the physical plant, and the workers attitudes. It is interesting to look at visual cues on employee bulletin boards, and graffiti throughout a facility. What message will a buyer observe as they tour a facility with tattered 4-month old notices tacked haphazardly to a bulletin board? … Or graffiti scrawled across closet doors seldom opened.

Prep for sale of fixed assets requires the view of a potential buyer, understanding that any significant changes to integrate into their strategy equates to additional cost and risk.  Eliminate these issues, and you have a better negotiating position.