Decoding the Why – Exploring the Motivations Behind Asset Disposal

Part 2 of 4

Welcome to the second in our series on understanding asset disposal. In Part One we provided an overview of asset disposition, looking at the primary parties involved and where the motivations for disposal differ between various stakeholders.

In Part Two we will explore these motivations in more detail, citing some real-world examples and helping you to identify where opportunities might exist within your own organisation.

Reasons for Asset Disposal

In Part One we discussed the fact that businesses can increase financial performance and improve resource optimisation through effectively disposing of obsolete or underperforming assets.

This can be especially profitable for small to medium sized businesses which make up the backbone of any economy and tend to operate in highly competitive, low-margin spaces where the value of an individual asset can be the difference between profit and loss.

Such companies are often able to unlock hidden value in obsolete or underperforming assets that can be overlooked as a revenue source. Assetflow recently worked with a company in the UAE on just such a project – where the business was able to identify a list of close to 30 assets that had ceased to provide significant revenue contributions to its balance sheet.

The equipment was appraised, valued, and catalogued for a sale that was then concluded over the following months resulting in an equity release that hadn’t previously been forecast.

We recommend that all companies perform a yearly asset audit to identify obsolete or underperforming assets that can be marked for disposition. Performing such an audit on an annual basis not only provides obvious benefits in terms of financial gain, but also provides critical business intelligence data which can be used to streamline operations and improve efficiency.

Another area of opportunity often revealed in this region is that of project-based disposition. Companies in the Middle East are intimately familiar with huge range of projects constantly being announced, initiated, and ultimately finalised – each which provide both challenges and opportunities as firms scramble to deliver on time.

The conclusion of these projects often provides a disposal scenario of bulk assets that can provide excellent value to the secondary market through the offering of equipment that has likely been purchased new and utilised for only a short period of time.

An example of this can been seen with the large amount of equipment currently entering the secondary market after last year’s Football World Cup in Qatar.

Assetflow is currently assisting a Qatari client with a disposition of over 3,000 units worth in excess of $6m – most of which are nearly new items in immaculate condition providing a rare opportunity to the second-hand market while stimulating a crucial equity release for our client.

Liquidations, mergers, and acquisitions also provide unique asset disposal opportunities that, when handled correctly, can be incredibly lucrative.

Mergers and acquisitions often result in asset disposal scenarios because the companies involved may have redundant or non-core assets that are no longer necessary for the post-merger or post-acquisition entity. To optimise operational efficiency, reduce duplication, and streamline resources, these assets are divested, allowing the new organisation to focus on its core operations and strategic goals.

Such scenarios are often well planned in advance and result in a clear list of assets in need of a disposal channel with a decent understanding of what can be expected of the process.

Liquidations, on the other hand, tend to be far more complex – involving multiple asset classes, occasionally with unknown provenance. The equipment location isn’t always known, nor is the condition of the equipment, or even if it still exists as presented in company documentation.

Despite these challenges liquidators have an even more pressing reason to pursue a disposition solution as all of these complexities are only exacerbated with time.

Assetflow has acted for a liquidator in the past on a sale of stressed assets where there was an expectation of a warehouse full of equipment having been stored since the company ceased operations 6 months prior.

When attempting a physical evaluation we were stunned to find that previous employees had illegally recommissioned the facility and were utilising the equipment to produce product which was being sold on the grey market.

This highlights the challenges of asset disposal for liquidators, especially in the often-misunderstood Middle East regulatory environment, but the appointment of the right partner with the necessary expertise can greatly help to mitigate risk and conclude an asset sale that can be both efficient and profitable.

One of the projects that Assetflow has undertaken in this area involved the liquidation of an oil lubricant refining and storage facility located in the UAE. At a value of $20m the project involved a huge range of both mobile and stationary assets with a sales process involving multiple global partners to successfully realise the value of the equipment.

Part Three

In this article we have explored the reasons for asset disposal and provided a glimpse into some of the challenges involved. Join us for Part Three, coming soon, where we will explore the methods and strategies for asset disposal, before our final article in this series takes a deep dive into the challenges and considerations faced by companies as they navigate their disposition environment.

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