It is important for us as appraisers to review the previous year, in order to try and predict the trends in the coming year and how those trends will affect our practice. How are our profession and practice growing and how are our customer demands evolving?
In this article, I present my analysis of the upcoming trends in 2015, which is based on my own business experience here in Montreal. Part of this analysis includes the identification of those factors that affect my practice.
Since 2010, there have been many changes which we have met. At that time, almost 80% of our business emanated from the financial services industry, with the intended use for proposed financing. The requirement for appraisal was relatively straightforward, as small numbers of machinery and equipment (5 to 30 pieces of equipment) were valued for fair market or for orderly liquidation.
A sign of the evolution of customer demand is the requirement now for larger and more complex appraisals. The small valuations are now handled internally by the financial institutions, however they retain outside firms, such as ours, for much larger and more complex assignments. It is more common now to be asked to value larger quantities of equipment, often more than 100 pieces, with an overall value that often exceeds 2 million dollars. We are asked to comment in our reports on market and industry trends. In doing so, we have to consider geographic location, the average life of the equipment fleet and other relevant issues concerning technology, operability, de-installation as well as the important issue of timing of a resale in an orderly or forced liquidation.
We find that many more of our clients are sending their own “engagement letter” spelling out the type and definition of value as well as their other requirements. Our clients are becoming better educated on the importance of an independent valuation services.
In the past, it was normal for an inspection of property to be done on a sample basis. For example, it was sufficient for a transport company to have 50% of its fleet inspected. Now clients are requesting at least 75% of the equipment to be inspected, and more often than not 100% of the entire fleet of equipment to be inspected as part of the valuation.
We find that the people we used to work with in these financial institutions have changed. Instead of working with only an account manager, the mandates for valuation are coming directly from the credit department and there is minimal, if any, communication with the account manager.
In addition to these changes, there is a growing demand for appraisals for fair value. Since the beginning of 2011, Canadian Public Companies must use the “International Financial Reporting Standard” (IFRS) for the presentation of their financial statements. According to the IFRS many companies now value their assets at fair value, based on the accounting Standard 13 Fair Value Measurement also call “IFRS 13”. This standard is a market-based measurement where observable market transactions are available. This is where specialized and independent appraisal firms come into play. Much of this business comes from referrals of our business valuator colleagues or accounting firms, who know of our competence and experience with the valuation of machinery and equipment. The fair market value is also regularly requested for Mergers and Acquisitions (M&A).This year, our firm produced more appraisals, in compliance with IFRS 13, for the purposes of M&A than financing.
In my opinion, these changes are here to stay and being aware of those trends has permitted us to adapt these changes and keep on developing our business.
Wish you all success in 2015
Marc-Antoine Martel, ASA, CPPA
Accredited Senior Appraiser of the American Society of Appraisers
Machinery & Technical Specialties