Evaluating Used Bindery Equipment
by Brad Emerson, general manager
Buyers must compare specifications of potential used machines against current and future finishing product mix requirements to ensure return on investment.
Buyers should always inspect used machines. Evaluations performed by qualified inspectors will ensure fewer headaches in the end.
The decision to purchase new or used bindery equipment often is driven by a desire to replace two machines with a single, higher performance machine. However, most high-performance machines have reduced flexibility or reduced size range in order to achieve a higher output. Many times, binderies then are forced to outsource perfect binding, saddlestitching or hardcover finishing work because the recently installed machine is unable to run the size or format required. Therefore, buyers must carefully evaluate and compare specifications of potential used machines against current and future finishing product mix requirements so as to ensure return on investment.
Evaluating used machinery
A big part of selecting a used machine involves understanding and planning for future sales. For example, the buyer might need to consider if the desired line – such as a perfect binder – is able to be economically expanded to produce PUR adhesive books. Can a perfect binder or saddlestitcher be upgraded with camera barcode matching systems between covers, text or personalized endsheets in hardcover books to produce personalized digital work, if applicable?
Other buyer considerations involve domestic OEM electrical parts availability. Does the buyer have a local or in-house machine shop that can economically make basic parts? What percentage of electrical parts is obsolete? Does the used machine have an electrical “black box” where only the seller’s local electrician, if still in business, can support or provide electrical service? Can a full-service bindery equipment dealer create a modern controller to eliminate the obsolete controls?
Furthermore, buyers should always, 100 percent, confirm the age of a perfect binding line, saddlestitcher, cutter, folder or hardcover line end-to-end. Unfortunately, it is a somewhat common marketing practice for dealers and brokers in the graphic arts industry to promote the age of the youngest piece of a line, while omitting the age of the older pieces, such as trimmers, stackers, add-on feeders, etc.
It also is important to understand how often the used machine being considered comes to market. This can save buyers the stress of weighing the risks of waiting for the next machine to come to market or giving in to an unknown seller’s pressure tactics and wiring a down payment before the machine can be properly evaluated.
Be sure the machinery has been inspected
In this age of camera phones and broadband, dealers and brokers will promote a “cream puff” piece of used equipment they have never personally inspected. A great slogan is: “You cannot expect what you do not inspect.” This is especially true when it comes to purchasing used machines. Buy the plane ticket and have a qualified person who is not affiliated with the seller or dealer evaluate the equipment. For buyers who do not regularly purchase used equipment, do the homework of validating the seller and transaction terms.
Often, investors will impulsively lock on to a hot deal or get caught up in the “auction adrenaline rush” and ignore basic investing steps. Old, time-tested rules like “if it is too good to be true, it probably is,” still hold true today.
Buyers should seek out dealers who deduct the inspection cost if they are provided a first/last right of refusal for the relocation. That way, as long as they provide full turnkey relocation services, including transportation, there is no finger-pointing with damages or other headaches, just one phone call to make.
Beware of unscrupulous dealers
If a dealer or seller threatens for a down payment today or tomorrow or else the buyer is out: game on. Buyers should reduce their offers if the seller comes back around with “the other buyer fell through,” even if only by $1,000. Buyers owe this to all the straight shooters out there that these unscrupulous dealers and brokers prey on every day for cash.
Be cautious of online auctions; they are not all created equally. Unsellable, obsolete surplus equipment often is rounded up from multiple sources to look like a brand-new auction or company closure. Some auction dealers hide in the fine print that an auction is not an “absolute auction,” meaning they are just collecting potential buyers as leads for their buyer database. The shady auction dealer then gets busy offering unsuspecting buyers other equipment and negotiating them to a much higher price for what they originally bid on. They also might partner with other dealers who have what the buyer wanted, so that buyer then ends up paying two or three commissions instead of one.
Seek dealers who allow for purchases directly from sellers or end users if they do not already own the equipment. That way there is no middle man for title or lien transfer problems. Buyers also should request a sentence or two on the seller’s letterhead, invoice or sales contract indicating the seller fully owns and has the legal right to sell said equipment free of any liens, encumbrances or partner agreements. This simple verbiage significantly accelerates legal proceedings should problems arise.
For buyers who are 100-percent financing new equipment, it is mathematically impossible to avoid being upside down on a loan or lease. However, careful investing in used equipment can help keep the balance sheets in the black. It is possible to purchase the right machine at the right price and still have it be worth something close to what was paid or more. This will further optimize the investment. Banks, leasing companies and equity partners will never agree with, “We don’t care about the resale value, because we’re not selling the machine.”
It can be difficult to assess the actual value of an 18-month-old “like new” piece of used equipment. When the auction excitement kicks in, there seems to be no time to develop a capex (capital expenditure), which in most cases, properly executed, protects buyers from purchasing mistakes. For example, the “like new” piece of used machinery: Brand new, the same machine’s purchase price would be $100,000 after whatever “best show customer” discounts are factored in. In an auction setting, the 18-month-old like new machine bids get up to $75,000. The buyer has lost money at this point. First, the buyer also must pay the auction premium of 15 to 18 percent ($13,500). Then, there is the unbudgeted removal plan where the buyers will probably have to use the auction company rigger. Keep in mind, the rigger is not responsible if the line ever runs again and there was no time to get a turnkey quote from a specialized bindery equipment professional. Everything must be out in a few days, and the auction rigger with the big forklift is not responsible for damage during transportation the buyer must arrange. The machine can arrive incomplete or missing original factory manuals or special machine tools, parts, etc. because the auction rigger did not know what to look for before transportation.
The buyer now has a machine that typically included some level of installation, training and warranty if purchased new, but these costs must be added on top of the auction premium for relocation. If the installers find parts broken or that need to be replaced, the 18-month-old machine is no longer under warranty or the warranty is void due to the rigger who did not know or care about OEM moving procedures. All of this adds up to money lost for the buyer.
When it comes to preparing a plant for machine utilities (electrical power, high pressure air, trim waste systems, relocating other existing equipment, pouring concrete pads, etc.), these costs can exceed the initial equipment investment, especially if rushed and the “OT floodgates” are opened. For those considering a used machine currently under power, try to negotiate for transformers or entire electrical panels off the seller’s wall if they are surplus for the seller and match the buyer’s needs. If a perfect binder or saddlestitcher has web press log feeders, maybe there is an overhead gantry crane system that would no longer be needed by the seller and could easily be negotiated into the purchase package?
Typically, surplus budget funds saved investing in pre-owned equipment vs. new equipment go toward additional equipment purchased; however, depending on the skill level of existing or new machine operators, strategic longer-term training programs can be tailored to ultimately achieve the highest production goals, including difficult-to-run gimmick products. During initial machine training immediately following equipment installation, it is impossible for operators to foresee the problems, including computer errors where applicable, that they will have after the initial training session ends.
The best advice I can give when investing in pre-owned equipment is that the investment does not have to be a complete leap of faith. Reputable, full-service bindery equipment companies exist, offering consultation, CAD layouts, full-time technicians, rigging crews, semi-truck transportation, rebuild centers with complete machine shops, experienced trainers and warranties for the work and services they perform. The more services purchased as a package from a single source provider, the less finger-pointing and responsibility loop-holes buyers will get caught up in when startup issues inevitably arise. If the idea of doing homework on used equipment is not necessary in the buyer’s mind, the buyer should buy new equipment as long as the cost is justified. The number of used sellers who do not care about the buyer’s long-term success on a piece of used bindery equipment far outnumbers the ones who do!