GoIndustry’s audacious acquisition of DoveBid has seen its aspirations become truly global. Morag Dickson reports
In February, AIM-listed asset appraisers and industrial machinery auctioneer GoIndustry acquired US rival DoveBid, paying £13.8 million cash and issuing 32.5 million shares to acquire LA-based DoveBid. The funding was raised from directors, existing backers and institutions.
John Allbrook, CEO of GoIndustry, says the £17 million deal allows the company to strengthen its position within the North American market, providing market leadership for asset appraisal and disposal services through traditional and online sales in the US, Europe and Asia Pacific.
GoIndustry first established its presence in North America through the acquisition of Michael Fox International and Asset Trade in 2001. However, due to a number of difficulties, including identifying and recruiting suitable sales staff and securing profitable new accounts in what Allbrook describes as an “intensely competitive market”, the US venture would only come to represent 20 per cent of its global direct profits.
“Traditionally, GoIndustry’s bid was very Euro-centric, with a significant proportion of revenue coming from the UK,” explains Tim Chapman, head of Valuation Europe at GoIndustry. “And Fox in the US was a comparatively small component of our
“DoveBid derived the majority of its revenues from and in the US with only satellite operations in Europe, making it a predominantly US-centric business. So what we bring to those asset-based lenders in the North American market is the expertise of an established valuation business with a regional presence on the ground in Europe.”
In a region that accounts, according to The Economist, for more than 25 per cent of global manufacturing output – where the majority of businesses are financed through an ABL facility – the acquisition of DoveBid allows GoIndustry to penetrate the North American market. The deal has increased its database of prospective buyers of industrial assets and its asset appraisal and valuation capabilities.
Elaine Shelley, ABL Business Development UK at GoIndustry, estimates it would have taken the company more than five years to build equivalent scale and penetration into the US market.
Since it was established in 1999, GoIndustry followed a programme of sustained organic growth and a spate of acquisitions to debut on AIM in 2006. Last year the group made a pre-tax profit of £700,000 – more than double the 2006 figure of £300,000. Online sales grew by 22 per cent from 465 in 2006 to 568, and gross asset sales of
£1.9 million were spurred with the launch of a new online sales exchange in the metalworking and plastics sectors. In light of the DoveBid manoeuvre, the company’s share of revenues attributable to major long-term contracts with multi-nationals reached 15 per cent for the first time.
“We approached DoveBid in mid-2007,” says Chapman. “At the time, a number of suitors were circling the business. We went through the due diligence process and sealed the deal on 25 February this year. Integration has been in full swing since and will culminate in a unified company, operating under combined global brand name, GoIndustry-DoveBid.”
That integration plan will deliver cost savings of up to £4 million pounds in 2008 and £5 million pounds in the following year, he notes.
Gaining a significant foothold in DoveBid’s native territory, GoIndustry has already begun sourcing US-originated deals with European elements – something the team has not previously been able to access.
“It was difficult to win the European element of a transaction without having a presence in the US to facilitate that mandate,” admits Chapman. “Since the deal went through, we have been looking at a number of deals involving US-headquartered companies with European subsidiaries.”
But convincing US lenders to extend their facilities to Europe is not without its challenges.
“Compared with the UK, and in terms of lending, asset-based lending is a lot more focused in the US,” explains Shelley. “It tends to be a very common form of financing there, largely because it is much easier to lend in a market which for inventory deals has no equivalent to Retention of Title (ROT).”
ROT is a clause that allows the supplier to retain ownership of the goods until they have been paid for in full and providing a form of security against default or insolvency. The idea is that if the buyer becomes insolvent before he has paid for the goods, the seller reserves the right to reclaim the goods.
Shelley explains: “In the UK and Europe, ROT can have a significant impact on how much is realised against the inventory, which is why when we’re appraising an asset in this geography, we look at the ROT aspect in order to understand what the real collateral value would be against that asset.”
There is a massive opportunity to grow the US ABL market by bringing its financial muscle and expertise to Europe.
Historically, ROT was considered to be a legislative stumbling block by North America’s ABL community, a phenomenon that has to date seen US lenders being reluctant to conduct business in Europe. Yet an increasing number of US multinationals with subsidiary operations are embracing pan-European ABL.
In addition to this, ABL in Europe also needs to evolve in certain countries. Explains Chapman: “France is a huge growth market for us where we will be providing more services in accounts receivables for ABLs and for the lessors in machinery & equipment. We are pre-empting that as legislation evolves receivables lenders in this market will eventually become more comfortable with working against inventory and machinery & equipment, and are ready to roll out our collateral valuation services into France, Germany, Spain and the rest of Europe.”
Shelley observes that ABL deals in France and Germany – where, relative to the UK and the US, the market is still in its infancy – are largely receivables-based finance deals, but it is expected to mature.
The first priority for GoIndustry is essentially about education and support: “We are already partnering with lenders to train their European teams on how best to monitor collateral, especially inventory. This is being actioned to develop awareness and grow confidence among Europe’s key ABL communities where there are legislative differences from one jurisdiction to the next.
Boasting strong ties with insolvency practitioners and second-hand equipment dealers in eight countries, GoIndustry’s speciality will make it a robust concern during a global slowdown.
“We see opportunities from bankruptcies and production shifts from west to east”, claims Allbrook. “Counter-cyclicality is good news for our business.”
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• IBP Conex – valuation of machinery & equipment, inventory and receivables on gross assets of £40 million across the UK, Italy, Spain, Poland and Germany
• Distributor of video games to mass retailers with $90 million of revenues and $22 million of inventory
• Reseller of used and refurbished networking and telephony equipment from manufacturers such as Cisco and Nortel with revenues of $40 million and $4 million of inventory
• Division of Delphi focused on the manufacture of wheel bearings for automotive OEMs citing revenues of $280 million and $10 million of inventory
Machine & equipment valuations in France
• Valuation of machine tools worth €4 million on behalf of GE Capital Solutions
• Valuation and disposal of test equipment worth €2 million
• Valuation for a major pharmaceutical manufacturer with assets of €4million
• Valuation for an automotive component supplier with €2 million of assets.