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Best Practices for Buying and Selling Manufacturing Equipment at Auction
I recently had the pleasure of talking with Eric Weiler, who is the president of New Mill Capital. New Mill Capital is an asset disposition firm that buys and sells manufacturing equipment. As you can imagine, right now, that is a very hot area, and Eric is going to shed some light on that and on how you can utilize it.
I mentioned how your company is involved with the buying and selling of manufacturing equipment. I would like you to educate our audience about what are the benefits of companies considering purchasing used equipment versus new equipment?
Eric Weiler: Well, I think, going back over the years, you can always point to two things. Obviously, used equipment is going to be more cost effective. The second thing is lead time. In any sort of manufacturing setting, there's a certain amount of time from when you order it to when you can actually have the equipment on your plant floor, install it, and utilize it. In the last two years, that's changed. And we've always seen people benefit from lead time and discounted pricing, but currently, you're finding lead times have grown from six months out to two and three years. So a lot of even larger companies, your fortune 500 type of companies that have traditionally always ordered new, very expensive, specialized equipment, are even turning to the used market because the reality is, if you have to replace something and you can't do that for two years, you have to look to the used equipment market, whether it's auction, liquidation, a dealer platform for that kind of outlet.
And typically speaking, if you have the maintenance department, which is a very important thing, I think, in any food processing or beverage company, to handle those assets, install them and include them in your process now, you're at a cost savings. So whether you're saving 20% or 70% depends on the assets, depends on the market. But right now, given the way the supply chain is for providing machinery from these OEMs, it's very important that people look to the used equipment market to continue to support their manufacturing plant.
Donna Peterson: If you've got the employees right there in the facility, you can't wait three years for a piece of equipment. You have to think about it like what you're going to purchase the equipment for, how fast are you going to get it into the facility and up and running and utilizing the manpower you have.
Eric Weiler: When we look at the manufacturing process, I'm sure a lot of the people that are plant engineers out there, they look at bottlenecks, right? So if you have some sort of bottleneck in your production process because a piece of equipment is not available or it breaks down, that 20 or 30 or $40,000 piece of equipment can cost tens of millions of dollars because it stops the entire process at that point. So to be able to source that piece of equipment from the used equipment market and install it and cut down that downtime is huge. Because to most manufacturers, that's the number one thing, safety and downtime. So again, good used equipment is a great option to keep plants running, keep them running smoothly, and to make sure that you don't have heavier downtime than you would like.
Donna Peterson: It's imperative for them to keep manufacturing at the rate that they can, especially with the demand that they have for their products. Now, you said something in your last comment about supply chain, and I think we all can agree we hear about supply chain on a daily basis, if not almost an hourly basis when it comes to manufacturers. Reinforce to us again why, with the supply chain issues, the used equipment marketplace can be a great option for companies.
Eric Weiler: I think the supply chain itself has experienced a couple of different issues. At first it was materials, right? So at the beginning of COVID, it was more about getting the materials when everything was shut down. Now, it's about labor. So you have two different facets of it. The materials are coming back a little bit, the labor is hard to get, and it all adds up to tremendous lead times. So I think one thing that people have to consider when they think about used equipment is there's a number of reliable sources out there. Now, there's some unreliable too. But there's a lot of very good used equipment.
And you look at companies that, for example, have put a project into motion and then two years later their marketing team says that's no longer viable. Well, the reality is that equipment is almost new, and it can be utilized by a number of different manufacturing companies in a number of different verticals. If you take a look at a metal detector, for example, most of the food world is going to use that metal detector. Most of the food world is going to use a stainless steel processing tank. So there's a lot of good assets out there that you don't have to wait to get.
And we try to make it an easy process for people, as easy as we possibly can as it relates to buying the asset, loading it out, understanding what they're responsible for. We try to spell that out for the buyers because we know everybody isn't used to that. We have the traditional pool of people that are used to buying in the used business, and then now we're seeing more people come in that have never really done it before because of those things we just mentioned. So we try to make it as easy for people to buy and logistically coordinate as we can. But again, you've got a lot of good stuff out there that just you can't get otherwise.
Donna Peterson: My next question, which I think you just answered, is what should people expect when buying in an auction setting. But I also, if you're a new company coming to you to purchase a piece of equipment, how difficult will it be for them to place a bid, to win it, and to get the piece of equipment?
Eric Weiler: Well, I think with anybody, there's a little bit of a learning curve like anything else. You're going to have to understand how to register. These are fairly easy things to do. You just have to kind of take your time with it. And we're always happy to answer questions. If you call us, we can walk you through the process. But for the most part, it's about finding the equipment that you want, registering for it, and then understanding the auction itself. It's a timed, almost similar to an eBay style, sale. But what we do is we have bid extensions, that allows it not to close at a hard timeline if there's continued bidding so people have the opportunity to come back. But it's a relatively easy process. Maybe if you're not used to bidding electronically as some people are used to the old school way where you show up on-site and raise your hand.
Some companies ask for deposits, some don't. But I think the most important thing that I can kind of tell everybody if you're doing it for the first time or if you don't have a lot of experiences, one, look into the company that's selling it because there's a lot of people out there that get their hands on things and offer it, and they don't necessarily convey the information or the equipment properly. Two, if you're going to buy something of significant value, take the time to go out and look at it. Because auctions are as is, as inspected. That will never change. There's no warranties. Now we do the best job that we can to portray the condition, provide the photos, provide the descriptions, but at the end of the day, it's up to the buyer to make sure it's suitable for their process. So make sure you send a maintenance person out to take a look at it.
Donna Peterson: We mentioned that you usually do have preview time where people can come out to look at the equipment before the bidding will begin.
Eric Weiler: That's correct. And the way it used to work, prior to COVID, is we'd have two or three open inspection days. If you had a sale on the 14th, you'd have an inspection on the 12th and 13th. So now what we're doing and it actually works better, it's more convenient for people because of COVID protocols, and companies don't want to pile people on site at the same time. So we let them do it by appointment. And if you want to go and look at the equipment, we do it by inspection. You give us a call, we coordinate with the plant, and then you can go out and have your one-on-one tour. It makes it a little bit easier to ask questions and get to the bottom of things too.
Donna Peterson: I was just going to ask you that. Besides previewing it, is there someone there they can ask specific questions so that they know that this piece of equipment would be perfect for them?
Eric Weiler: There is, and it depends on the situation. Not every situation is the same. A lot of times we're dealing with plants that have closed down completely out of bankruptcy and there is nobody there, and the only information we can provide is what we have. Buyers can also go to the OEM and ask process or technical-related questions about the equipment that they see in the plant. The OEMs are usually happy to have that conversation or explain the maintenance programs going forward. And then sometimes we have a plant manager that's still there that sees it through to the end. And I'd say it's 50/50. Usually, there is somebody we can reach at the company, but there are distress situations where we're not able to have someone from the company answer questions.
Donna Peterson: But you are able to tell an individual about how much the equipment was used, maybe how many hours it was used or years, versus when you have brand new pieces of equipment that maybe were shipped to the facility, but never were installed.
Eric Weiler: Yes. So that happens. We're working on a project right now where you pull things out of a box that have never been touched.
So it's one of those things where you kind of have a spread of equipment throughout the facility, and we're happy to lend as much professional opinion as we can and as much of the information as we can. But at the end of the day, I always like to say, the process engineers and the people that are in charge of buying this asset, they know their product, they know their process better than we do. So we try to help as much as we can, but we're not perfect.
Donna Peterson: You must be doing a great job because your company has grown, and it has a good reputation, especially across all industrial auction companies, but also in the food and beverage space. And so you have to be giving the buyers accurate information, and they're happy with what they purchase from you.
Eric Weiler: Generally speaking. And what we've tried to do, and it's not always the easiest, is we've tried to provide everybody with the best information we can, we've tried to be fair with people, and we've tried to be transparent.
And if you ever participate in a sale with us, we bombard you with information. We know you're not going to read it every time or all of it, but we want to give you everything that you possibly need to understand the rules of engagement. Do you have to pay sales tax? When does the machinery need to come out by? We list what the removal prices are. We kind of give you as much as humanly possible. And I know it's human nature to skip over things. I do it every day, as does everybody.
But we do our best to help people and make them feel comfortable. And if there's a problem, we try to fix it. And if you're fair and if you're a decent person with people that you deal with, they tend to come back. And for us, that's everything. I think that the following we have is specifically due to the fact that we've always said, you know what, no matter what, we want to sleep well at night. So that's not the case in some companies and industries. So that's important to us, and we try to do that every day.
Donna Peterson: It's funny you should say that because that's my big thing even when I'm talking to my children. But I always said with my work, I want to come down and be able to look at myself in the mirror and like what I see. So sleep at night, like what I see in the mirror, meaning I am being as ethical and as helpful for individuals. Because as you know, marketing right now is all about relationship building, and it's about building trust. And the best way to build trust is to be as transparent as possible. And then if issues do arise, try to help those people. And what I found is sometimes your difficult situations end up creating your most loyal customers because of how you handled it.
Eric Weiler: It's true. We've had that happen where you have an issue and we've dealt with somebody in a fair and, call it, equitable way.
And then a lot of times, the way you treat them, if they have a sale that needs to be taken care of, they remember that. So it comes full circle, like anything else.
Donna Peterson: So then the other thing is we're talking about the whole buying process, but then companies should also look into if they've got assets in their facilities that they're not using, how they could turn around and sell those assets and create a new revenue stream for themselves. And a lot of companies don't take advantage of that. And I'm surprised.
Eric Weiler: A lot of that is due to a lack of focus on it. And a lot of people that we deal with, their production is so important that if they're switching out a line or if they're emptying half of a plant, they don't necessarily look at the recovery end of it versus the speed end of it. And one of the things I like to tell everybody is come to us sooner than later. Because if you come to me a week before you're removing this stuff, I can't help you. I don't have the time to advertise it. I don't have time to prepare all of the steps that need to go into selling assets. So whether you're thinking of selling a complete plant, complete plant equipment package, a line, or a few assets, the earlier you come to someone like us, the better off you're going to be because we have the time to properly manage it and put the right program in place for you.
There's a number of different avenues of selling assets. We primarily deal with auctions. I like auctions because, very simply put, if you do your job in advertising appropriately, you're going to find what market value is on that day. Now, there are other certain assets that are super specialized that may not qualify for that and you have to liquidate over time, but the point is no matter what you have, there's a program for it. And rather than scrap the assets or sit them in a warehouse, it makes sense to convert them into cash that you can use for other equipment. Even if you're buying backup equipment for the equipment that you have in your plant with the money from your used equipment, it makes sense.
A lot of people have a hangup with the accounting function in that they may be removing assets, but the books are so heavy that they can't sell them yet. Obviously, if you're going to sell something, you should talk to your accounting department, your financial people, plant managers, et cetera. But it's too many times I go into plants and just see a boneyard, as we call it, full of what would've been millions of dollars worth of equipment, and now it's just scrap weight. The equipment doesn't get any newer, so capitalize when you can. And convert that into something that's beneficial for you going forward rather than letting it collect dust.
Donna Peterson: Right. And as I can imagine, the earlier you sell it, the equipment's newer. You let it sit too long and it starts to get old and outdated, and then like you said, then it becomes scrap metal. So people should also think of the auction space as an environmental issue.
Eric Weiler: Well, it is adaptive reuse. Whether we're talking about equipment or an entire plant, it's an adaptive reuse of something that was no longer viable for a certain operation, person, or company. And another thing that's very important is the equipment will never be worth more in my opinion than when it's in place. When it's sitting in place, it shows operation, it shows it was functional. You pull that out and you stick it over in a warehouse in the corner with a bunch of other stuff and it looks exactly like that.
Donna Peterson: It puts the question in the buyer's mind of does it actually work? Why isn't it hooked up? Why is it in the corner there? It just puts a lot of doubt in the buyer's mind on how much they're really going to offer for it. So if you want top dollar for your asset, it is better to see it in motion.
Eric Weiler: I would rather sell it prior to it being removed from production and load it onto a buyer's truck than load it into a warehouse and then try to figure it out after the fact. Once it's disconnected and taken apart, it just never looks the same. It doesn't... Is it saleable still? Yes. But is it the same value now?
Donna Peterson: That makes sense.
Eric Weiler: Right. Why are you getting rid of it? And you can't show them that it operates. It's a value proposition then of how cheap can I buy it knowing that it may not work.
Donna Peterson: Right.
Eric Weiler: So while you probably are happy to get rid of it for whatever you can so you don't have to haul it out of there, there was a better option prior to, right?
Donna Peterson: Yes
Eric Weiler: And that's kind of what I see happen to people is they move it all over there in the corner. None of it's connected, and now it becomes that, does it work? Does it not work? And that's super important to remember with all of your assets. And the people in our industry are happy to come out and give you an inventory of your plants. We'll do that and carry that information so that when you tell us we're selling X, Y, and Z, we can immediately get a sale with it. It helps.
So we have a bunch of different resources. Obviously we're not the only company that does this, so there's, a number of people out there in our industry. We're all happy to help, and we have a number of different options that we can give people from valuations to plant restoration, asset sale, real estate purchases, turnkey marketing. I mean, we're all very capable. And not everybody understands the depth of our industry and what we can provide, but we are an asset. And the more you take advantage of that, the better your bottom line's typically going to look as it relates to your equipment.
Donna Peterson: I know there are several different industrial auction companies out there, but when it comes to the food and beverage space, your name comes top of mind, always. But why did you decide to specialize in the food and beverage space?
Eric Weiler: Starting out for me in this industry, I went to Michigan State Packaging College. So the packaging end of it sort of naturally kind of fit, but I didn't start out in the food space. I started out in metal and heavy industrial. So as I moved through that over the course of a few years, I realized, having done a couple of deals in the food and personal care space along with heavy industrial, that it's better for me and it felt like a better fit. From the people that we're dealing with to the plants, and it's a higher level off engineering.
And then I started thinking about it from a pragmatic level and I said, okay, the population isn't shrinking, we all need to eat. We all need pharmaceuticals. We all need something to drink. We all use shampoo. So when I look at those and of the process and packaging industry, it fits from a security standpoint. And from there, we kind of fell into place after that. So I've been doing the processing and packaging end probably for a little over 15 years now. I spent three or four in industrial and then kind of a transition in the middle. But for us, it's great because you're able to transition a lot of these assets across multiple industries where other equipment, you can't do that. So the same tank that is in a Kraft facility may be used completely different in a Kelloggs facility, but it's very viable across all of the different verticals. So it's a fun industry to be in. You learn a lot about what you eat and what you don't want to eat. And the things that essentially go on and in your body. So it's fun. It's a good, solid industry that we didn't see moving away from the United States or North America. So it provides job security as well.
Donna Peterson: Well, it's also a good space because you're seeing so many different manufacturers in the food and beverage space pop up. Just like you said, we're seeing more health conscious options come to the marketplace. And with that, when they're just starting out, I would imagine they're great companies that would be interested in maybe some used equipment because they may not be at that point where they can buy brand new, but they need to get it.
Eric Weiler: What the huge guys over here may not necessarily find to be efficient anymore, it trickles down to tier two, tier three, tier four. And if you're a company that's starting up, not only from a supply chain standpoint and lead times, but it's significantly less expensive. Now, one thing I would say as a startup or a young company, is make sure that the assets you're buying on the used market, one, that you qualify them, and two, if you're running a specialized product, you may not want to go with used equipment. You might want to go to an OEM for that support and that training.
So you have to be careful that you don't bring in something that you can't handle, and you need to be sure that you have the staff available to make what you buy work. But from a cost standpoint, it's extremely effective. And in a number of cases, you can start acquiring equipment in two or three months versus two or three years, and you're talking 20 to 30% of new prices. So depending on what it is. It's a sliding scale, and again, the supply chain is affecting used equipment prices. But it's certainly a viable option for new companies.
Donna Peterson: In the food and beverage space, is there ever a contamination issue? For instance, if a company manufacture something with nuts and then they sell the pieces of equipment, do the people purchasing them have to worry about that? Or is the equipment able to be sterilized in a fashion that that's not an issue?
Eric Weiler: It is in some cases. And like anything else with allergens or manufacturing where you may have that cross-contamination, if you look at certain packaging, it says made in the facility with nuts.
So it is buyer beware to a certain extent, but you know what plant it's coming from. We're selling it and disclosing where it's coming from. So you have that option to say, okay, if I can't have this type of equipment that produced a product that is an allergen. You have to make that decision as a buyer, whether or not you can take that piece of equipment and feel comfortable installing it. As far as the auction companies go, we typically don't sterilize that equipment. It's clean, generally speaking, but to certify it as allergen safe is something that you won't find. But again, it's up to every individual buyer to decide whether or not they feel comfortable taking that piece from a plant that produced peanut butter and moving it over to their soft drink. So it's dependent on the situation.
Donna Peterson: I really appreciate your time today and explaining this to people. Because I know there's a lot of companies out there maybe are not even aware of the auction space, or they are and they're just hesitant to take that first step in testing it out. But it sounds like you could go to previews, they could contact you directly, and people could almost walk you through the setup. So it shouldn't be that scary or daunting for them.
Eric Weiler: No, and we're happy to answer any questions that people have, walk them through the entire process. It doesn't do us any good not to have them bid. So we're happy to make sure they understand the rules of engagement, what to expect, the timing, how it all works. And we're happy to explain that to anybody, whether it's a $1,000 pump or a $250,000 packaging machine. We'll take the time and make sure they're comfortable. And on the sales side, too, same thing. If you have an interest in selling assets, we'll talk through your scenario with you, what your timing is, why that is, what are the factors that you know are driving the sale of the assets, and give you the best scenario, in our opinion, to monetize and move on.
Donna Peterson: When a company does that, are you able to give them maybe a timeframe based on the types of equipment they have available, how fast you might be able to get it sold?
Eric Weiler: Yes, we do that. We're happy to come out and visit. So we'll take a look at the plant, we'll take a look at the equipment, factor in what we think it takes for removal, the appropriate advertising time, and then we'll give them a best case estimation, and then we'll ask what's your requirements? And then we kind of fit the two together in order to make it work best.
Donna Peterson: Excellent. I want to thank you again for joining me today.