Sunday 4 December 2016

The right moves: Resurgence in demand for plant and machinery proof of strong growth

Paul McNeive

Published 28/07/2016 | 02:30

Valuations must be approved by the Revenue Commissioners
Valuations must be approved by the Revenue Commissioners

There is probably no better barometer for the property and construction industries than the market for plant and machinery. The demand for manufacturing plant, fit-outs for new commercial buildings or plant and equipment for building sites, represents the coalface of the markets, and all of these are rebounding strongly.

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The plant and machinery markets have been dominated by insolvency for many years, but that is turning around now, with a reduction in the number of receivership instructions.

Plant and machinery specialists are seeing a new era of business, driven by restructuring and expansion in the private sector.

Robert McKay, Managing Director of McKay Asset Valuers and Auctioneers says that a surge in companies restructuring and expanding is leading to an increase in demand for formal valuations, all of which must be approved by the Revenue Commissioners.

The era of public auctions is over and McKay reports a big shift to online auctions, which open up global markets. This requires the preparation of a much higher level of marketing package, to include 'virtual tours' of machinery, which allow individual lots to sell online for hundreds of thousands of euro.

Sometimes specialised machinery is sold by tender where there is a limited market or where the vendor wants to avoid selling to a competitor.

There is still an insolvency market and McKay reports that some banks are now commissioning valuations from two firms of asset valuers, in order to defend possible claims that assets were not sold at 'fair value'.

A continuing trend of companies voluntarily closing and transferring manufacturing back to the US, or elsewhere, is another source of business.

Examples include Bose GP, who closed their factory in Carrickmacross and where McKay sold 1,500 lots of surplus manufacturing equipment. An upcoming example is Lund Precision Products, who are transferring their agriblade manufacturing and certain machinery from Athlone to the US and where 300 lots of residual machinery will be sold.

There have also been a number of closures in the printing business and there are some impending closures in the pharma sector.

A real sign of the turnaround in the market is a severe shortage of second-hand equipment for the construction industry and Irish contractors are travelling to the UK to buy cranes and excavators.

The other hot areas of demand are for traditional printing machinery and engineering machinery and most major equipment sold here goes to buyers in Europe.

Manufacturers and financiers need to be aware that even in a good market, the value of new plant and machinery typically reduces by up to 60pc the day after it is bought, as on resale it needs to be decommissioned, transported and reinstalled, and is sold without guarantee.

UK buyers are a significant element of demand here and McKay says the current uncertainty with sterling will have a downward effect on second-hand values in Ireland.

Underlining the recovery in the construction sector, Keith Manning, Managing Director of Celtic Leasing Plant Hire says the plant hire business is up by 20pc in the last 12 months and growing rapidly, with hire rates also up by 20pc in 24 months. Manning says his main sources of business are builders working for the Department of Education, contractors on road infrastructure and housing being built through Nama.

Manning is making the most of the sterling weakness and and told me a pertinent story. Having been an underbidder for five items in the UK a few days before the Brexit vote, two days after the referendum result the vendor called him asking "how many do you want?" All five UK-based building contractors had cancelled their orders.

Celtic Leasing was able to acquire the machines they wanted, at a discount to their original offer.

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