Strategies to Maximize Return on Idle Equipment
News Jul 05, 2013
Redeployment of assets within the business – perhaps moving lab instrumentation or plant equipment to another facility when required – may be the ideal scenario, but in some cases, sale or disposal of assets is the chosen route. Here we speak with Roger Gallo, President and CEO, EquipNet Inc., the global leader in this field, as he answers some of the most frequently asked questions about how to achieve a good return on equipment that needs a new home.
How much of a market is there for used equipment and what sort of value can be realized by this practice?
There certainly is a market but, like many areas of business, you need to know what you are doing to access it successfully. Working with our clients, we think through a company’s overall goals. For some, speed of liquidation is critical; with others who perhaps have higher value equipment and/or more time, achieving the highest financial return is the key. For many, it’s somewhere in between these two axis points. That’s why we developed our Value Control Model. Figure 1 shows how redeployment, negotiated sales with managed pricing through an on-line marketplace, competitive auction events and clearance programs fit together to deliver a consolidated service, whatever the individual needs of a company.
Sounds straightforward, but with organizations that have a large amount of assets – laboratories and manufacturing facilities full of the equipment and machinery required for operation, for example – the situation can be complex. Our clients are researching cures for cancer and developing new drugs. They are not equipment experts and they are the first ones to admit that having a specialist help in this regard is critical to the success of an asset management program.
As far as the value recovered, data collected from a member survey of the Investment Recovery Association, based in the US , demonstrated the benefits of a professionally managed investment recovery program and the bottom-line value it can provide:
• Asset investment recovery can save companies an average of $13 million a year; individual companies have saved as much as $150 million a year from asset management services
• 70% to 90% of every sales dollar generated by investment recovery goes straight to the bottom line as profit
If we consider the results of a current client relationship; we began work on a global initiative with a major company around 10 years ago, the goal was to allow visibility of assets across multiple manufacturing sites. Using the approach described above, they have been able to not only share and redeploy assets between sites and sell-off their surplus equipment, but also to consider the purchase of premium pre-owned assets from other top-tier manufacturers. The program has so far generated over $14 million in savings.
What have been the drivers for the growth of this market?
The growth of specialist asset management services in the pharma and biotech sectors over the last 10-15 years has been driven in large part by the turbulent times experienced in the industry. Looming patent cliffs, lost revenues from generic introductions and strategic mergers and acquisitions (M&A) have all had an impact. Between 1988 and 2000, more than $500 billion worth of mergers and acquisitions took place , and recent Bloomberg reports cite a total of 676 takeovers of biotech by pharma companies in the last three years . Market experts from PriceWaterhouseCoopers believe there is still the possibility of considerable M&A activity for large pharma in 2013 .
A further driver is the rise in contract manufacturing. MarketResearch.com  has analyzed the expansion of the industry and predicts annual growth of 11% for the next 2 years. Biopharm and pharma companies are turning to contract manufacturing as a means to increase efficiency or acquire particular expertise, and to keep up with the growing demand for pharmaceuticals in both western and growing economies. The growing generics market is another positive trend for the used lab equipment industry, with its clear focus of cost-efficiency.
Of course, it is not just manufacturing facilities that are prone to redundancy. Often pharmaceutical companies invest millions of dollars in state-of-the-art lab and analytical equipment to design, formulate and test a new drug, only to be left with idle assets if, for example, the drug fails to receive regulatory approval, the company relocates development to another site, or shifts focus to another therapeutic area.
Whatever the driver, I am pleased to note that forward-thinking corporations such as Merck, Novartis, Johnson & Johnson, GE Healthcare, and many more, are utilizing our structured programs to maximize their financial returns, meet critical deadlines, avoid unnecessary costs, and prevent health, environmental, and theft hazards associated with idle assets.
How do you help a company if it needs to close a facility?
When a company closes down a plant or lab facility, we see that for some, little consideration is given to the equipment inside the buildings until the last minute. Assets often have to be sold off quickly for a fraction of their realisable value. This is where a team of specialists such as ours comes into its own. EquipNet people have expertise in working with pharma manufacturers as they reconfigure facilities, or choose to shut down a site completely. They can analyze the operations, provide fair market appraisals on the equipment, make recommendations, and provide a prospective schedule for change long before the site shuts down.
What makes EquipNet the world leader in this field?
Our passion for client service, our global footprint, and our flexible approach and dedicated programs have allowed EquipNet to become the world’s largest asset management company in our chosen markets. We assist companies to buy and/or sell pre-owned laboratory instrumentation, manufacturing equipment, and plant utilities in the pharmaceutical, biotech, chemical, food, beverage, and personal care sectors. EquipNet is the largest supplier of used and unused pre-owned pharmaceutical equipment in the world. For example, at any time, our MarketPlace™ contains details of more than US $100 million worth of pre-owned equipment from some of the biggest pharmaceutical companies in the industry. Of course, our people have had a big impact too; most members of our team of specialists have long experience in the pharma and chemical markets, and with EquipNet.
The company was founded in Massachusetts, USA in May, 1999, and has grown from two original employs to its current staff of 115 people, with headquarters in Canton, MA and offices across the globe, including Canada, Latin America, UK and Europe, India, and Asia.
To sum up – what would be your top tips for our readers?
Good question, my summary would be – think as far ahead as you can, constantly evaluate the situation with your company assets, develop an ongoing overall program for all assets instead of a reactive approach for individual closures, and be proactive in planning any disposals. And, of course, rely on EquipNet as your partner in realizing full value in everything that you do!