TIM: Aaron Equipment is known for processing and packaging equipment, and you have brought to Aaron Industrial Solutions your experience in metal, recycling, plastics, and printing, among other industries. In these markets, prior to COVID, how did you determine when to conduct your auctions in-person or online?
Joel: By the time COVID hit, the market was already comfortable with online auctions, but we still did some in-person auctions. The decisions were usually driven by the economics of each situation. In the early days of online auctions, we still wanted to “look them in the eyes” if we could, so we would simulcast a portion of the auction and run the rest in-person only. (Simulcasting holding an in-person auction with live online bidding as well.)
But simulcasting is very expensive because you have to incur the crew expenses of an in-person auction, as well as the expenses of arranging an online auction. Eventually many buyers quit coming to the in-person auctions. I remember a specific in-person auction where we were selling the equipment stadium-style, and I looked out at the seating and realized there were no buyers under the age of 45 in the crowd. Any lots which we sold in-person only were being totally missed by the younger generation of buyers. This wasn’t good for the buyers, the sellers, or us as the liquidators.
As time went on and the market became more used to online auctions, that became our default. Even a small in-person industrial auction can incur $25,000 or more in crew expenses, such as airfare, hotels, meals and so on. A larger auction can incur a very high bill. As the online bidding technology matured and buyers and sellers became more comfortable with online auctions, it became the more efficient option in the majority of situations.
Did “online only” limit your flexibility in handling seller reserves, pacing the auction, and so on?
We webcast our auctions in a live format. Online bidders can place pre-bids, but they can also follow the auction live and bid along in real time. It is like going to an in-person auction, but instead of seeing the auctioneer and the auction crew, you see the bids and asking amounts increase on your screen, and you can click to increase the bid when it’s your turn.
Our auction team meets live on a group Zoom call as the webcast auction is being conducted. The auctioneer is still responsible for directing the opening and closing lots, combining lots, and pacing the auction – just like in an in-person auction. On the Zoom call we also have the bidding app operator, other crew members, and sometimes the seller. This allows us to do things like combine lots and handle seller reserves in real time as the auction progresses.
How did you respond when COVID hit?
Honestly, it did not affect our process as much as we feared. Our team was already experienced with online-only auctions, so we were prepared. We had an auction in South Dakota shortly after COVID hit which could not be postponed. So we just went for it and had a webcast auction. Our team was spread out between Chicago, Florida, and many other places. The auction was a success; everything sold at or above our pre-COVID expectations.
After that, we never looked back. We adopted protocols for buyer inspections and removal which were in line with each state’s COVID mandates. We did attempt one simulcast with strict social-distancing, but the results from the live audience were mediocre. All of the major items sold to online buyers. The expense of simulcasting and the hassle of social distancing was not paying off in extra revenue for the seller or commissions for ourselves. So we have not actively pursued simulcasting since that time. If a seller wants it, we will still do it – but there will probably be extra costs involved.
Before COVID, in-person auctions were enduring out of tradition and as social events. I made a lot of great friends over the years at our auctions, and I enjoyed seeing them and doing business with them. In-person auctions are a great way to network with people in the industry. It is much easier to build trusted partnerships when you meet people in person – I miss that part of the business. And, especially in family-owned businesses, the family likes to have the auction and preview days as an event for employees and other people to come back and say goodbye to the business.
But the industrial auction industry was already accepting that business was being done online, and that online auctions were usually the most efficient solution. COVID pushed the last holdouts over the hump. Like many other professionals, we are enjoying seeing more of our homes and families. The industry is not going back to in-person walkaround auctions as the common way of doing business.
Do online auctions result in different value outcomes than in-person auctions?
On the total package of a plant, the outcomes will usually be the same or better, especially on the good items. The auctioneer is still marketing the assets to the same buyers, and buyers will still send their technicians to inspect the assets. If they buy something, they still have the same expenses of rigging and freight. It’s really just the method of placing and accepting bids which has changed. And buyers don’t have to travel to bid, so that saves them a lot of time investment.
But the structure of a sale can be different, and on the lower end, items can be more difficult to sell online. At an in-person auction, the buyers have invested their time to travel to the site and may stick around for the end of the sale to pick up some bargains. At an online auction, buyers will log off if they don’t win the item they came for.
At an in-person auction, you can almost always “clean up” the shop. We can usually bargain with scrappers or bargain-hunters to get rid of everything. The buyers are standing there looking at it, and they can’t pass up a deal! The auctioneer creates a bit of a carnival atmosphere and gets the buyers to help out a little.
But with an online auction, you can’t convince somebody to drive across town to clean up your junk. You don’t have that personal relationship, and they haven’t invested any time or effort to be there already. The auctioneer can’t convince a scrapper to clean out a storage room in exchange for keeping anything they find and buying them a hot dog!
Because of this, an online auction of a plant with a lot of undesirable items is more likely to incur cleanup and removal expenses than an in-person auction of the same facility. If you’re appraising a plant for net liquidation value, you have to think about those costs coming off of the net proceeds of the sale.
Is there anything else you’d like to say about the way COVID has affected the marketplace for processing equipment and other industrial assets?
The value factors for any auction are the same as they always were. Does the plant have a good reputation for taking care of its equipment? Are the assets clean and modern? Are the logistics favorable for taking the assets out of the plant and getting them on the road?
And don’t underestimate the importance of location! When you’re appraising for liquidation value, don’t disregard the local manufacturing economy. If a big manufacturer in town is ramping up and handing out contracts to all of the local shops, those shops will pay top dollar for a working machine they can put in their shop tomorrow. Buying a machine from a competitor you know is less risky than buying from a shop across the country. And they don’t have to wait several months to get a replacement from the manufacturer – they can start making money tomorrow. Location is very important to liquidation results.
If COVID has had any effect, it has really drawn a line between desirable items in a plant and “everything else.” Markets are changing very quickly. End-users are buying what they need right now, and dealers are buying what they can resell right now. If it’s not an in-demand item, it might be scrap.
About the Authors
Joel Bersh is the co-CEO of Aaron Industrial Solutions, a subsidiary of Aaron Equipment Company. Mr. Bersh has been involved in the distressed asset industry for over 34 years. He has a deep and comprehensive expertise in metal working, plastics, woodworking, construction, printing, bindery, processing equipment and other industrial assets. Mr. Bersh is a certified AMEA appraiser, a member of the Machinery Dealers National Association, and holds auctioneer licenses in several states. Contact Joel at: [email protected]
Tim Roy, ASA is an M&E appraiser with Capitale Analytics in Indianapolis. He is an officer of the MTS Committee and the ASA Indiana Chapter. Contact Tim at: [email protected].