In any economy, auctions work

When the economy faces challenges, some companies seem to do well, while others struggle to survive. Regardless of their situation, an auction is one tool that can be used by any company to generate cash. Liquidity can help a struggling company regain a foothold or provide a cash injection to a strong company to help it take its business to the next level.
Smart Business spoke with Dick Kiko, CEO and broker of KIKO Realtors, Auctioneers and Advisors, about how auctions can help companies in both a strong and a challenging economy.

What can an auction do for a company performing well?

During a challenging economy, even strong-performing companies may have capital needs. These companies need to review their portfolio of nonworking assets and liquidate them in order to buy new assets — equipment or inventory that is needed to move the company into new markets to take advantage of the opportunities brought on by the economic disruption. It also makes sense to convert assets to cash so they can quickly make other moves, such as acquiring a competitor who is in a weaker cash position. In either scenario, auctions generate liquidity through attracting interested buyers to aggressively compete to buy the assets in a controlled and accelerated timeline.

How do auctions provide relief for a struggling company?

As the economic outlook becomes tough for a company, time is of the essence. An auction gives the seller control on setting the time and terms of the sale, and they can act quickly to generate the liquidity needed to infuse capital into the business. For instance, a business could leverage an auction to sell less-desirable inventory, nonworking capital or real estate to generate liquidity and then use that money to purchase inventory that’s moving faster in the current market. An auction can create a sales event and turn around the proceeds to a seller within 45 to 90 days.

How can auctions help companies that are facing pre-foreclosure or bankruptcy?

Pre-foreclosure and pre-bankruptcy are stages at which the owner is about to lose control of the company to lenders and lawyers. But if they reach out to a professional auctioneer/adviser at that stage to analyze the situation and work to craft a solution that’s favorable to both parties, it may not be necessary to go all the way to a legal action. An auction can minimize the problems and maximize the returns for everyone.

During the last recession, selling assets through a short sale, meaning the sale price of an asset falls short of the secured debt, became more prevalent. Today, more lenders are willing to work with borrowers to explore a short sale when an auction adviser is involved. To help mitigate losses, these discussions should happen as soon as the owner sees trouble on the horizon.

Assets seized through foreclosure or bankruptcy are typically sold through sheriff’s sales, which aren’t very well marketed or attended, often leading to a no-sale or a credit bid. Today, an auctioneer can be appointed in lieu of the sheriff. They craft a marketing plan to promote the sale to the public, thus creating better results for the parties in the legal action and attempting to minimize any deficiency to the borrower.

What are the signs that a company should reach out to an auctioneer to discuss its liquidity issues?

Regardless of the economic health of a company, it can benefit from evaluating nonworking capital on an annual basis. This allows them to determine what assets or real estate are no longer functionally important and if the company would benefit from converting them into cash.

Today, companies face an unstable economy and might soon begin to feel the ice under their feet getting thinner. Don’t wait until the ice breaks and you are facing legal action. Talk with an auction adviser to review the situation and formulate a strategy to deal with it directly. Lenders appreciate the effort and will often work with borrowers to craft a plan. Liquidating assets via auction frees up cash to be used to benefit the owner’s needs. Auctions work.

Insights Liquidity is brought to you by KIKO Realtors • Auctioneers • Advisors

How auctions benefit sellers

Businesses and individuals who need to liquidate unused assets can benefit greatly by selling those assets at auction. However, the auction method of marketing is often perceived as the last resort, and sellers believe they will not realize the true market value of their assets.

“That isn’t the case,” says Dick Kiko, CEO, Broker and Auctioneer at KIKO Realtors, Auctioneers, Advisors. “Just ask the buyers who go to auctions and lose out to another bidder. They lost the item because someone was willing to pay more than them, so it’s unlikely a seller will get injured at a well-run auction.”

To ensure that doesn’t happen, it’s important to find an auction company that’s capable of attracting interested buyers who are willing to compete, creating a strong market for the auction.

Smart Business spoke with Kiko about how auctions benefit sellers, how auctioneers serve as advisers and what to look for in an auction company.

Why should a company sell assets through an auction?

One of the exclusive benefits of an auction is that the seller sets the time and terms of the sale. The seller’s terms, which benefit them, are pre-established and displayed on sales day for the buyers. There is no negotiating, which puts the seller in a position of security. The buyers know that the highest bidder will get a clear and marketable title after they fulfill their commitment of paying.

Another auction benefit is the buyer’s premium. The seller uses the buyer’s premium, which is added to the highest bid to establish the purchase price, to offset the auction commission and other fees.

An auction is a big event that attracts interested buyers because there is no set price so everyone believes they could be the winning bid. The auction process is typically fast — 90 days from contract to close on real estate and even less with chattel (personal property). A conventional listed property, where the price is predetermined, eliminates many buyers before they even look and can take months for an offer to be negotiated.

How can sellers determine the best assets to sell at an auction?

Items sold at auction range from real estate to chattel. Their market value, based on market demand at the time of the sale, ebbs and flows with supply, demand and location. Obsolescence also impacts value. But everything has a price.

When a seller has assets they want to liquidate, they’ll call an auctioneer and ask them to take a look. But prior to even seeing the assets, there should be an in-depth discussion about the seller’s goals. Why are they converting these assets into cash? Once the goal is established, an auctioneer will then evaluate what is to be sold and calibrate the seller’s expectations against what the auctioneer thinks is possible, based on their knowledge of the market.

At that time an auctioneer will also determine the best approach for the auction. For example, they will review the assets to be sold and determine if they are worth more individually or as a package — is 30 acres worth more as one piece or as three 10-acre lots? An auction allows the seller and auctioneer to discern this by selling assets in sum or in parts, whichever way is best to achieve the seller’s goals and maximize the sale price.

What should sellers look for in an auctioneer?

Integrity, honesty, experience, fair dealing and a good reputation are the hallmarks of a good auctioneer. They should not be just an order taker, but someone who acts as an adviser to the seller. Both parties go to market together, and each has a hand in the other’s success. The auctioneer’s sale analysis and appraisal ultimately determine if the seller’s goal is realistic and how the auction should be run.

It’s also important to work with an auctioneer that has knowledge of the local market and the assets that are being sold as well as the marketing reach to attract the right buyers. Do due diligence to make sure the auctioneer is qualified and has a history of strong sales in the category of assets to be sold.

Insights Liquidity is brought to you by KIKO Realtors • Auctioneers • Advisors

Auctions offer companies a reliable way to liquidate assets

Auctions are a powerful tool to take assets to market and connect with highly interested buyers. And their long history of quickly converting assets into cash has put them in the spotlight.

“At a time when there’s a great deal of uncertainty in the market, many businesses need cash,” says Dick Kiko, CEO, Broker and Auctioneer at KIKO Realtors, Auctioneers, Advisors. “In order to do that, they need to connect the right assets to the right buyers. Auctions are and have been a valuable tool to accomplish that task.”

Smart Business spoke with Kiko about auctions and how they’re driving value for sellers at a time when cash is invaluable.

 

 

Why should sellers consider using an auction to generate liquidity?

Anything can be sold at auction — land; residential, commercial and industrial property; heavy equipment; vehicles; etc. Before the internet, auctions were largely local and regional events, drawing only on-site participants. Luckily, over the past several years, and more so during the pandemic, auctions have incorporated a virtual component for internet bidding while also accommodating on-site bidders.

Now, auctioneers are selling properties to bidders across the globe via online auctions. That means sellers are able to get their assets in front of a lot of interested buyers, which creates competition and ultimately drives up the sale price.

What’s the risk that an asset is sold at less than market value at auction?

While an appraisal is an estimate of the price an asset could potentially command in the open market, what someone is willing and able to pay is an asset’s true market value.

An auction attracts interested bidders and they compete for each item, setting the market value through the competitive bidding process. So, for an asset to be sold for less than market value at auction, it would have to be a poorly marketed and attended auction — one that failed to attract the right buyers for the items being sold.

A good auction firm makes sure the right market is represented at the time of the event, so interested buyers compete, thus driving value for the seller. If you don’t believe this to be true, then you really don’t want to sell your asset for market value, you want to sell it for what you hope to get — the appraised value. The truth is, more auction sale prices exceed sellers’ expectations and appraised value than don’t.

What does the auction process look like in practice?

The assumption is that auctioneers are just fast-talking bid-callers, but that’s only one aspect of it. Auctioneers work with sellers as advisors to identify their goals, determine which assets have the best chance of selling and how to best present them to drive interest and handle the auction logistics. It’s a very well-thought-out process.

An auction firm needs to have a thorough understanding of the real estate property or items being sold so it can expose them to interested buyers, much like any company works to attract buyers to its goods and services.

The key to a successful auction is marketing to create visibility in the marketplace. Marketing strategies — including signage, print media, direct mail, email blasts, social and digital media, internet ads — are deployed to attract the right bidders. It’s important to work with an experienced auction firm with a track record of success; otherwise, there is a real risk of not achieving maximum value through a sale.

Most people think auctions are only for bankruptcy or foreclosure. Nothing is further from the truth. Auctions help businesses and individuals expedite a sale, generate liquidity and create competition, which leads to higher prices for sellers. But it’s important to work with an experienced auction firm, one with a track record of success. Otherwise, there is a real risk of not achieving maximum value through a sale.

Insights Liquidity is brought to you by KIKO Realtors • Auctioneers • Advisors