Thanks to the astonishing growth in the power and complexity of data-gathering technologies, the role of analytics is looming larger than ever at businesses of all types and sizes. Indeed, c-suites everywhere buzz with talk of “big data” and its potentially transformative role. And when it comes to asset-based appraisals in the wholesale, retail and manufacturing sectors, it is certainly true that analytical reporting — i.e., the entire dataset related to the appraised company’s ongoing operations — continues to be of utmost importance in the appraisal process. After all, this dataset represents the collective perspective of some of the best and brightest at the company: the CFO, financial analysts, controllers, managing partners and the like. Through analytics, in other words, a company can tell the factual side of its story to the bank in considerable detail. What could be more critical?
Nonetheless, there is another side to the story, which may or may not receive adequate attention depending upon the attitudes and predilections of the parties involved. In many cases, field visits by the appraisal team can yield a higher-resolution picture of the actual state of company operations.
In the course of conducting field visits on behalf of the lender, an experienced appraisal team can uncover clues as to whether the numbers in the report are actually substantiated by the reality on the ground. Ideally, these clues illuminate ways in which the company may have been undervalued. For example, members of our appraisal team visited visited a manufacturer and learned that its parent company had just purchased the manufacturing rights for two technologically advanced, potentially game-changing products. And yet the analytics did not yet reflect this reality. Why? The numbers in the report, while perfectly accurate at the time they were recorded, happened to be from a month prior to the visit. They simply did not reflect the implications of the company’s strategically important acquisition. Likewise, field visits could uncover a host of appraisal-enhancing developments that might never make it into a spreadsheet — e.g., the traffic boost caused by a new loyalty card or the successful rollout of an impressive, in-store technology program.
From the top floor of an office in New York or Los Angeles, it can be difficult for the c-suite to know whether its vision truly does extend to all of the company’s operations. Field visits by an appraisal team with years of experience in wholesale, retail and manufacturing can yield valuable insights about stores, distribution centers, inventory, product delivery, advertising, loss prevention, production efficiencies and more. In some cases, field visits will reveal a host of smart, well-timed investments or divestitures by the management team, moves that make the company well-positioned to continue on a path of progress. In the case of a retailer, for example, the flagship and other top-performing stores have all been renovated and the bottom 10 percent of the portfolio trimmed. In other cases, firsthand investigation might reveal obstacles such as outdated inventory-management systems or clunky approaches to distribution.
In another example, one of our appraisal teams conducted field visits at a very large, national retailer that had gone through lots of mostly positive change. Its Web site, catalogs and advertisements were stateof-the-art, but as the field visits revealed, there was a sense of disconnect from this vision at many of the stores, which were not necessarily in synch with the chain’s cultivated brand. After all, creating beautiful images is inexpensive and easy relative to actually redesigning several hundred stores.
The point is not for the team to make value judgments. Rather, its job is to give the bank some insights, based on years of experience within the sectors in question, into what is truly happening at the company. Timing is a noteworthy consideration here as well. As mentioned, field visits can sometimes uncover forward-thinking initiatives that have already been implemented since the cutoff date of the report. But particularly when it comes to companies in fast-changing industries, simply conducting two field visits per year (one is the norm for many firms) can yield more timely information that can add value to the appraisal. When combined with top-notch analytics, field visits can be an excellent way to help substantiate and enhance the valuation process. If three or four appraisal experts fan out across the country and all come back with the same vision and feeling about a company, this will clearly give the bank even more confidence in the accuracy of the appraisal. In today’s still-volatile economy, this is valuable indeed.
This article originally appeared in ABL Advisor.