One of our clients called us and explained that they were in
the middle of negotiation with a new lender.
They gave us an appraisal assignment to review a “previous outdated”
fleet appraisal, update it, and provide them with a current appraisal to
substantiate the value of their fleet for the bank. We gathered updated mileage, CAPX expenses,
fleet updates and other key information necessary to produce an accurate and
true picture of value. When we were finished,
we discovered that there was an additional $2,500,000 of Orderly Liquidation
Value (OLV) over the previous appraisal.
We sent our customer the draft, asked them to review it and
then call us for their approval to finalize the document. When our customer called, he was amazed that even
with depreciation; we were able to find additional value on a fleet of 50 buses. There were a couple of factors that
contributed to the shift in values.
First, when we reviewed the market and comparable units
available for sale (often referred to as comps or comparable units) and we found
this particular market segment has strengthened over the last couple of years. The bus market has always been a strong “supply
driven” market and when late model pre-owned buses are scarce, buyers will pay
a premium to get them.
In addition, it turned out the operator had replaced several
engines, transmissions, and interiors during the previous few months which made
a large difference in overall OLV. As
busy operators replace major components and invest in equipment upgrades, it is
easy to lose track of all the value that they put into the units over
time. After all, when you are running a
bus company, maintaining and upgrading your fleet is really just all part of doing
business, right?
To further leverage the cost of major maintenance and
refurbishing, most CFO’s and accountants get aggressive when it comes to capturing
and utilizing the depreciation of these major purchases. This however is still only two thirds of the equation.
Most people forget that there is a third
way to leverage the money that you have already spent and put into your
equipment. That’s where are Annual Fleet Appraisal can really help you drive
your bottom line.
When operators update or replace major components in their buses,
they are really increasing the value of the bus on the open market. It is important to remember that for every
dollar you put into a unit, you might get 70 cents back when you sell the asset
depending on the age and mileage of the improvement at the time of sale.
In the case of our customer a number of factors occurred that
made a significant increase in the OLV value of his fleet. Strong industry market segments, few
pre-owned buses available on the market for sale in this market segment, and our
ability to uncover the significant amount of capital that was invested in the fleet,
made a big difference in the overall OLV value. In fact it made a $2.5M dollar
difference.
With most lenders today loaning 85% of OLV, our operator
will be able to utilize approximately $2.1M dollars in loans against his operating
line that is being secured by his fleet.
That means that our operator could purchase roughly (4) four new
motorcoaches or (17) seventeen new shuttle buses this year. That ability for him to expand his business in
this way is a big deal and we are very grateful that he called us to help.
Have questions?
Email to info@busappraisals.com
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