Research Confirms Gap Between Book Value and Market Value; Buyer Saves $70 Million by Negotiating with Accurate Information
Client: U.S. Telecommunications Services Company
Challenge: Provide Fair Market Appraisal of Telecommunications Inventory
To better manage its inventory, a Bell company agreed to sell a portion of its inventory to a firm that provides distribution, repair, installation and maintenance services to the telecommunications industry worldwide. Under the terms of the supply contract, the seller agreed to buy back the inventory from the purchaser on a cost-plus basis. Its bank asked AccuVal to provide a fair market appraisal of the inventory to support the purchaser's asset-based loan application. At the time of the sale, the book value for the inventory – and its sale cost – was about $85 million.
AccuVal Approach
AccuVal's analysis determined that about 57 percent of the inventory consisted of used equipment including processors, memory cards, ethernet cards and transmission terminals. The cost of this used inventory was recorded at the Bell company's "best estimate of a replacement value." This meant older inventory was stated at the original Bell acquisition cost less depreciation. However, AccuVal's research concluded the stated costs were dramatically higher than the actual cost to replace the inventory on the market.
Bottom Line: Buyer Saves $70 Million By Negotiating with Accurate Information; Lender Structures Secure Transaction
Considering a fair market value approach, AccuVal concluded that the used inventory was actually worth less than 2 percent of cost and, in aggregate, 28 percent of book value. This translated to a gross orderly liquidation value of just 12 percent of book value. These findings brought the parties back to the table to negotiate a much more equitable selling price and empowered the secured lender to provide a working capital facility with confidence that the inventory was accurately valued.
The AccuVal AdVantage™
Decades of experience appraising assets in a variety of industries, including telecommunications. The detective skills and information resources to ensure value estimates accurately reflect the market. The dedication to spend the time necessary to find the right solutions, even under severe time constraints. That's The AccuVal AdVantage™ at work.
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