Industrial Assets Boosted by Hidden Value

by Bob Maroney, President, Gordon Brothers Industrial

Most business gurus advise lenders to take a step back and look at the "big picture" when underwriting a new deal. This month, I'm urging you to look inside that big picture when appraising the collateral. There's a growing trend among lenders to identify every element of value in a transaction. In other words, more and more lenders are looking for a hidden value beyond the basics in order to achieve success in a very competitive environment.

While machinery, inventory and real estate are still the basic components of industrial appraisals, savvy lenders are now looking beyond this basic level to less apparent values, such as company names, brands, patents and intellectual property.

The more tangible components of a company's inventory are also getting a closer look. There's a fairly new trend to appraise not only the raw materials and finished goods, but also the work in process.. Adding the value of the completed work in process components (if they were converted into finished goods) can bring additional value to a deal. The concept of converting work in process into finished goods, once thought of as an exception, now appears to be a long-term trend. Since there's a lot of capital in the marketplace right now, and most banks' portfolios have never been cleaner, lenders seem willing to take more risk.

Even if the economy takes a turn for the worse, this search for additional value will likely continue. In a slower economy, more cautious lenders will demand even more value before they approve a new loan. This approach will ensure that industrial appraisers continue to take into consideration the potential hidden value of intellectual property, brand names or work in process inventory that could possibly result in additional collateral.

Remember, looking inside "the big picture" can be the difference between winning or losing a new transaction.