Gregg Epstein, president and CEO of Perry Videx LLC joins us to discuss the market values of process equipment in the midst of a global pandemic.
About this segment of Blackbird TV
Recorded: September 10, 2020
Published: December 9, 2020
I’d like to introduce Gregg Epstein. Greg, so you’re the president of Perry Videx. I’m the president and CEO of Perry Videx. I think… that’s way too many letters for me I can’t keep up with that. I know there’s a lot of bankers out there that want to know what’s going on with values, Gregg what do you see right now relative to value stability, comparing it to, let’s just pick an arbitrary date at the beginning of the year. Well I think the more arbitrary date would be, say the middle early to mid March when it became kind of evident that things are going to change in the country in terms of businesses being open, close, and until that until that point in 2019, into the first couple months of 2020, it was actually a pretty robust secondary market on both the retail side, and I define retail sales as equipment that we have in our inventory in our warehouse that we can recondition if we need to in our shop and do whatever testing we need. That’s what I call the retail business in the appraisal world that’s the orderly liquidation world. All cylinders were firing both on that part of the business and on the auction part of the business until mid-March and what happened in mid-March just threw this enormous blanket of uncertainty into our market. Companies that access secondary market typically are are small medium-sized companies when they buy equipment it’s cap-X, it’s an investment for them, and investment hates uncertainty and so from really from mid-March to mid-April there was just a strange kind of freeze frame that occurred in all except for two sectors, three sectors. Those sectors were anything that had anything to do with making hand sanitizer. We could not sell enough equipment to make hand sanitizer for, we’re still selling it, there’s going to be a big glut of hand sanitizer. Yeah well we’re seeing, you go into any 7-Eleven and you can pick your flavors now. Which is a little frightening to be honest with you because there used to be, there were two or three major suppliers, and you knew who they were, now you don’t know who all the suppliers are potentially but in those first two maybe even three months, we sold every stainless steel tank we could. We sold every high shear mixer because these are gels and when you mix basically the isopropyl alcohol with whatever the the gelling agent is—usually it’s aloe vera gel—you need a high torque mixer, so all the high torque mixers, double motion scrapers, all of that was just walking out the door, and so that was one type of equipment pos-March that was, and continues really to be, strong. The other was in the alcohol distillation world where every craft distiller and craft brewer decided to make just alcohol to ferment to sell to people who were making hand sanitizer, and so that brought a whole array of demand for things like tanks and heat exchangers in the chemical part of our business, and distillation columns and condensers, that has pretty much settled out, so let’s say from… it’s a weird phenomenon that we bet that’s occurred from say mid to late April until now, there’s not a lot of equipment on the market in terms of the small purchases that we use to replenish our inventory for the retail business, the onesies the twoozies, depends… people are not making decisions right now so numbers are down frankly on the retail side, there is a strange phenomenon that has been going on that I can’t really understand, is that in that same time period where the retail business has been soft and any plant that’s come to auction has just been very very… they’ve brought lucrative numbers, at least ones that I’ve been tracking. Very gangbusters numbers, very few bad auctions in the last six months, is my experience and actually a couple of stupendous auctions. Across many different verticals, that’s what we’re finding as well, that auction prices have been stable throughout this, and it’s more on the retail and on the end-consumer side of things and in some cases the auction values have increased particularly if you’re talking about any small bottling packaging or anything that you can use for any kind of as you point out hand sanitizers. Hello! “Bring out the rest of the sanitizer tanks!” Exactly exactly and because we’re not in the packaging business but my friends that are in the packaging because we know that business. People that we know that were packaging dealers, they’re calling us like “help us find things” because that’s exactly right especially on the small sizes yeah it was crazy but for whatever I don’t know the psychology that is driving the auction numbers and maybe because everybody’s home and it’s easier, although they can still buy online from any used machinery dealer it is maybe it’s the fact that today’s engineering buyers grew up in an Amazon world or an eBay world, and they’re…my generation didn’t. And it takes my generation a little bit more of a leap of faith to buy a piece at auction that you haven’t seen, but perhaps not by today’s millennial auction buyers, because that’s all they’ve ever known. So the interesting dynamic and again kind of driving this back toward our target audience here with our respective customers, and mine being bank lenders, there’s some solace knowing that auction prices in your vertical in the processing chemical industry are are stable and and maybe even strong under all the gloom and doom that we’re facing in the world right now, those values are strong. So if you had a message for bankers right now would it be…could I paraphrase to say that their value and their collateral is relatively stable under all the circumstances? Yeah sure it’s relatively stable of course it depends on the on the sector there are for whatever reason for example—and this is entirely counterintuitive—there’s a lot of equipment that’s designed to produce ethanol on the market right now a lot of ethanol plants have closed in the last six months and that makes no sense to me at all because ethanol is his alcohol is hand sanitizer so… But aren’t most of those plants the giant midwest plants that were built because of the gasoline additive mandate? Correct. So they can’t be repurposed for anything else unless you rip them apart and either… They can be repurposed to make isopropyl alcohol or ethyl alcohol Not as they sit, though, you need to [both speaking] they’re not plug and play it’s not plug and play correct and that doesn’t that kind of equipment doesn’t auction anyway. No. That that’s a 12-month sales process. Correct. And and as I’ll tell bank clients those types of assets don’t make good collateral. Not typically no. They don’t make good collateral and a lot of banks don’t understand that just because it costs a million dollars doesn’t mean that it makes good collateral. What makes good collateral right now is anything shiny. And I say that only half kidding. The pharma world right now is at least in the pharma equipment world is really hot and that’s not counterintuitive, that’s completely intuitive, because of everything that’s going on surrounding not just the search for a vaccine but also all the work that’s being done in therapeutics and anything that we’ve touched in that world recently we just got finished a project where we sold three syringe manufacturing and filling plants, and numbers were crazy. Crazy good. So if a lender is.. in the parts of my world that I think lenders should feel comfortable in are anything related to pharma and about anything related with food, food processing equipment is… again I don’t know the economics but it seems to me that so many more people are eating at home and cooking at home now and less to restaurants and a lot of the big food suppliers have been able to retool instead of making 50 pound bags of soup they can make small cans of soup and so that world is evolving as well so those two worlds are pretty strong and all right for us. It’s all changing pretty quickly, and I hate to abuse the word but pivot, pivot became the buzzword of Q2 and everybody pivoted to this and pivoted to that, i guess it’s the right word from a from an operational perspective. I think the american economy has really shifted gears to deal with this quite well so hopefully on the back side in Q4 when the uncertainties of the election and the pandemic become a little clearer within the calendar year we’ll be able to to prognosticate with with some more certainty. so I think 2021… is going to be good. I’ve always seen my mission in this crisis to sort of to pilot our little boat across this sort of raging river to the other shore where there’s going to be lots of opportunity. Problem is they keep moving the other shore! But I think once we get there I think for the lending world, here’s the good news for the lending world: everything didn’t fall apart in our world, in my world, so there still it that very robust backstop to their loans out there, which is the secondary market. That is still—and in some cases you can make the case uncertainty breeds need to maybe buy a used one instead of a new one because who knows? And so i’m pretty bullish about 2021, I think the rest of 2020 is just going to be a bumpy ride, and i think I’m thinking more middle of 2021. I think up through March is still going to be a little funky, but i think Q2 next year, I think it’s going to start to see a real renaissance and I’m not an economist, i’m not an epidemiologist. I’m not a politician. I’m just a business owner who has unfortunately been through a bunch of these already, and that’s just where I feel we’re heading. Talking with Gregg Epstein today, president and CEO of Perry Videx LLC, Gregg, thanks for your time. Thanks, David.