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Buxbaum Group Inventory Appraisals
Top $5 Billion Again In 2004
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Buxbaum Group's inventory appraisal division evaluated more than $5 billion in consumer product inventories at cost value in 2004.
Part of the company's success during the year was its increasing penetration into the food sector. "We've really established ourselves as the inventory appraisal experts in that business, to the point that 15% to 20% of our overall appraisal business has been in food," said Buxbaum v.p. Jim Siebersma, who directs the company's appraisal unit.
In addition, Buxbaum made deeper inroads into such markets as auto, consumer electronics, health and nutrition, housewares, paper products, telecommunications, travel accessories, office furniture, pet food, jewelry and sporting goods. "We really run the gamut," noted Siebersma. "However, our bread and butter continues to be apparel and textiles, which contributed about 25% of our volume last year."
Approximately 50% of Buxbaum's consumer products
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appraisal activity during 2004 was in wholesale distribution, 30% in retail, and 20% in manufacturing. While the company's core strength over the
years has been in retail, lenders have increasingly come to Buxbaum for assistance in other industries. "It's gratifying to see that our clients acknowledge our expertise in these other areas and think of us when they need inventory appraisals," said Siebersma. "And our Buxbaum/Century affiliate has been invaluable in our ability to increase our stake in the industrial side of the business."
While most of Buxbaum's clients in 2004 were lending institutions, the company is working more and more on behalf of investment banks, equity funds and other financial entities. "We're expanding beyond typical asset-based lenders," said Siebersma. "And with Buxbaum/Century getting into its own lending programs, there is appraisal work to be done on those transactions as well."
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Assessing Food Inventories
(continued)
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Market share is another important consideration. If the manufacturer or distributor in question controls only 1% of the market, it may be difficult to move those goods because customers can turn to other sources for them. But if the company controls 30% of the market, it's going to be nearly impossible to find someone who can replace that kind of inventory. Customers are going to be more motivated to maintain a relationship with their supplier during the liquidation process.
Food valuation must also take into account the work needed to make inventory sellable. Lenders are accustomed to looking at finished products, but in the food industry, inventory often needs to be bagged or labeled before it can be introduced at the retail level. In order to put a price tag on inventory, you have to know how much you will have to spend to get it ready for market, and how difficult it will be to find the right bags and labels—not to mention, the people who know how to work with them.
Perhaps the trickiest aspect of the food inventory picture is the forward warehousing component. Let's consider the example of a California agricultural producer. Because it
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can't supply customers in New Jersey on a timely basis if its entire inventory is stored on the West Coast, the grower makes use of third party warehousing facilities between California and New Jersey. These facilities maintain short inventories and send out replenishment orders when they run low. Due to these circumstances, a lender desiring to assess this company's inventory can't stop at the company's warehouse. It has to understand that much of the inventory is in the hands of third parties who introduce a whole other dimension of risks and releases to the equation.
It takes considerable experience to be able to apply these considerations to inventory valuation. To minimize risk, secured lenders working with food manufacturers or distributors should be sure to work with valuation firms that have a true understanding on this industry's unique characteristics.
EDITOR'S NOTE: Earlier in his career, Mr. Ellis was a member of H.J. Heinz Corporation's consulting team, where he focused on international acquisitions of food industry companies.
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