Rob Hamner Speaks on Technology Lending Panel for CFCC
Date October 2013
On October 14th, Rob Hamner, managing director of Emerald Technology Valuations, joined other experts on technology lending in a lively discussion about how the industry has evolved during the past two decades and where it may be headed. The event was hosted by the Commercial Finance Conference of California (CFCC).
The panel discussed reasons why advance rates have risen in the sector. Mr. Hamner explained that over the past 20 years, original equipment manufacturers (OEMs) in the electronics industry have outsourced the majority of production to third party electronic manufacturing services (EMS) companies that provided turnkey box build, and in some cases, logistics services. As a result, finished goods quickly comprised greater portions of OEM inventories than raw materials, increasing the value of collateral. Further, the evolution towards commodity products has improved marketability of components and, in turn, the willingness to lend more aggressively against them.
Obsolescence is another area that was highlighted as an increasingly important topic for technology lenders. The pace of development has never been faster ‒ consumer preferences are evolving quickly and advances in technology continue to shorten product cycles. Several examples of this and how it affected collateral values were examined along with how this acceleration underscores the need for careful monitoring and frequent inventory valuation.
Looking forward, Mr. Hamner noted that exit strategies will need to evolve with technology advances, as well. During the past 18 months, Emerald has performed valuations of a number of consumer electronics products that include and require embedded software, ongoing web services and an iOS or Android application that serves at the product’s primary interface (music streaming, sport bands, home thermostats). Appraisers and lenders must now consider how to manage these critical software applications to retain maximum value at liquidation. While ideas for managing these assets are still evolving, it will undoubtedly be an important consideration going forward, as the number of app controlled products with embedded software will continue to grow.
The discussion was moderated by Robert Riiska of Focus Management Group. In addition to Mr. Hamner, panelists included Hamid Namazie of McGuire Woods LLP, Carey Do of Wells Fargo Capital Finance and John DiDonato of Huron Business Advisory.