The Boneyard That Could Have Paid the Broker
Idle equipment is worth nothing in the buyer's model. To a seller who moves first, it's cash.
I walked a field behind a chemical plant that held a small chemical plant's worth of process equipment.
The company had bought out a firm it did work with. The reason for the deal was the contracts, and the equipment came along with them. Much of it was stainless, which the weather doesn't bother, and much of it could be repurposed in someone else's process.
They had been trying to sell it off piece by piece for three years. Interest was thin, and nobody on staff knew that equipment well enough to take on selling it. Several hundred thousand dollars of capital, locked up in a field.
Nearly every operation I walk has some version of that field. It might be a boneyard out back, a rework area, a rack of parts for machines that left years ago, or a corner of the shop nobody has cleared since the last reconfiguration. Some of it has real value to the business. A lot of it is scrap. Almost none of it gets thought about when the owner decides to sell.
The buyer's number is zero
A buyer prices a business on the earnings it produces. Idle equipment produces none.
In the buyer's model, the boneyard is worth nothing. In practice it's often worth less than that: it takes up yard space the buyer wants for something else, it has to be dealt with eventually, and the buyer's environmental consultant will walk that field along with everything else.
The seller's number is different. Most lower-middle-market transactions close cash-free, debt-free. The seller keeps the cash on the balance sheet at closing and pays off the debt. Equipment turned into cash before the sale is the seller's money. Equipment left in the field transfers to the buyer, and nobody pays for it.
It's the same stainless vessel either way. What it's worth to the seller depends on which side of the LOI it gets sold on.
What a field adds up to
I walked a poultry processing plant in the Southeast with hundreds of pieces of equipment sitting outside. Most of it was stainless, and with a solid cleaning and sanitization it would go back into service somewhere. It had come off an earlier line configuration. Automation shrank the footprint, and the pieces that no longer fit went to the field.
As it sat, it was worth about $160,000. Cleaned, sanitized, and ready to sell, it was worth more.
Put that next to what a sale costs the seller. On a lot of lower-middle-market deals, $160,000 covers the appraisal and the legal work, and sometimes a good share of the broker's fee. Selling it a year before the business goes to market doesn't touch the earnings the buyer is paying for. It moves money out of a field and into the seller's pocket, and it changes the broker-fee conversation, which is the one most sellers resent having.
The three-pile walk
Not everything in the boneyard should go. When I walk a yard, every piece ends up in one of three piles, and the paper trail decides most of the sort.
Keep: spares the operation still uses. A rebuilt gearbox, a spare motor, a set of rolls for a machine that's still running. If the maintenance records show what it fits and when it was last needed, it has value to the business and to the buyer. It stays, it gets listed, and it belongs in the appraisal.
Sell: surplus someone else can use. The equipment has a manufacturer's plate, a model that can be identified, and a market. That gets sold, preferably by someone who knows that class of equipment. The chemical plant shows what happens when nobody owns that job.
Scrap: iron. Scrap is priced by the ton. The national average for #1 heavy melting steel was about $372 a ton this week, flat for six weeks, and individual yards pay less. The only question is whether cutting and hauling costs less than the check.
What makes the sort hard is that the knowledge usually isn't written down. The person who knew why a part was kept retired two years ago. When I appraise a yard like that, the value depends on whether the records or the manufacturer's markings tell me what the part is. If they do, I can find it in the market. If they don't, it's a guess. A small pump and a haul truck engine are very different guesses.
Who was right
I walked a small coal operation with about nine haul trucks sitting in various stages of broken. The site maintenance manager was pulling parts off them to keep the running trucks running, so part of that boneyard was holding its value. Many of the others were scrap iron. One dump bed was being used as part of a building.
The question on that site was whether hauling the dead trucks off for scrap was worth the cost. Was the squeeze worth the juice?
The CFO would answer one way and the maintenance manager another. Both were right, about different trucks.
A donor truck is worth what it saves in downtime and parts lead time, as long as someone can say what's already been pulled and what's left to pull. Without that list, it's iron with a story attached. The rest was scrap, and on a mine site far from a scrap yard, cutting and freight can eat most of what the scale pays.
Then there was the part neither of them was arguing about. Some of those trucks were still carried on the schedule at net book value, pledged as collateral. A truck that's a parts source or scrap and still pledged at book is something the lender will find, and pledged equipment generally can't leave the property without the lender's sign-off. That goes on the list before anyone calls the scrap hauler.
Somebody is earning the spread
I was on site at a scrap yard in Ohio that didn't treat everything it took in as scrap. Forklifts, miscellaneous machinery, and parts came in from companies clearing space. The yard put the pieces back together and sold the finished equipment on the open market.
That's a sound business, and it runs on the spread between what scrap pays and what a working machine brings. The company that sent the forklift out got the scrap price. The yard got the resale price. The difference went to whoever knew what the equipment was.
Scrap is sometimes the right call. Smart sellers find out which pieces it isn't the right call for before they sign the scrap ticket.
Before the LOI, never after
A year or more before listing, clearing the yard is housekeeping. Surplus gets sold, scrap gets hauled, spares get documented, and the cash stays with the seller.
After the LOI, it's a different situation. Most letters of intent and purchase agreements require the seller to operate in the ordinary course until closing. A yard emptying out during exclusivity looks to buyer's counsel like assets leaving the deal, even when the assets are junk.
It can go wrong in two more places. Parts carried in inventory feed the working capital calculation, so selling them can move the number against the peg. And gains on equipment depreciated to zero are taxable, which makes the CPA a before conversation, not an after one.
The brokers who catch this early all ask the same question at the listing meeting: what's in the field out back, and who knows what it's for?
About the author
Nathan Bazzle, MCMEA, CSBA, holds the Master Certified Machinery and Equipment Appraiser designation — one of 26 in the U.S. — with 20+ years and more than 900 engagements across mining, oil and gas, aggregate, heavy construction, and manufacturing. His appraisal and expert witness work runs through BAZZLE, serving lenders, attorneys, trustees, and industrial operators nationwide.
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