Kenneth S. Frieze & Rick Schmitt on Gordon Brothers Group's Acquisition of AccuVal-LiquiTec

ARTICLE

The TSL Interview

Date April 2015

Featured in TSL Express

On April 2, Gordon Brothers Group and AccuVal-LiquiTec announced that Gordon Brothers Group’s Valuation & Advisory Services Division acquired AccuVal-LiquiTec to form Gordon Brothers-AccuVal. The newly formed group will operate as a wholly owned subsidiary of Gordon Brothers Group, already one of the world’s leading disposition and appraisal firms. The transaction marks the union of two of the longest-standing valuation firms in the industry, boasting a nearly 140-year combined heritage. According to a press release, the new company is the largest asset appraisal firm in the world serving the commercial finance industry, conducting over $60 billion of appraisals annually from 25 offices globally.

Michele Ocejo, editor-in-chief of The Secured Lender, sat down with Kenneth Frieze, CEO of Gordon Brothers Group, and Rick Schmitt, former president and CEO of AccuVal-LiquiTec and now president of Gordon Brothers-AccuVal, to discuss the merger.

What was the catalyst for this merger from the perspective of each company? 

FRIEZE:  We’ve always admired AccuVal’s place in the marketplace, the quality of their work, their people, and the respect they commanded amongst clients. So it was from a place of admiration that we pursued this.  

AccuVal has a 25-year plus heritage as one of the market leaders in the appraisal business. It’s that market position that attracted us to them. When we overlaid their business with ours we saw incredible synergies. Gordon Brothers was already well established in the commercial &industrial disposition, lending and appraisal spaces, but AccuVal had even further penetration into the commercial & industrial market. And so by merging the businesses, we were able to become the number one appraisal firm in the world.  

Now when I say number one, obviously there are many ways to measure that. Certainly size is one of them, but I am most proud of being number one in terms of performance. The number of different asset classes we touch and the number of people that we have in the field across the world performing local appraisals is unmatched.  

So I could go on and on and on, and I know there are other attributes here, but at the end of the day this is a great combination, and it starts and ends with the people. We had the opportunity to get to know the AccuVal team over the years, and it’s just a great cultural fit. They care about the quality and reliability of the product just as much as we do.

SCHMITT:  I’ve been in this industry for 35 years now providing valuations of equipment, inventory, businesses and intangible assets to every major asset-based lender, a number of very significant private equity groups, and numerous corporations, including Global 200 entities, both domestically and abroad.  

AccuVal’s penetration into the appraisal business was deep and broad, and certainly we had a great deal of respect in providing valuations. And while we were in the liquidation business, we certainly were not of the same caliber as Gordon Brothers, so ultimately, in looking at my business long term, I saw we would need to enhance that ability in order to continue to be the best service provider to the major lending institutions of the world, as well as the many hundreds of smaller lenders we serve. And by layering my organization on top of Gordon Brothers’, we certainly filled in some of the gaps that we had, enhanced the businesses and again, together, became the number one provider of valuations to the marketplace.  

So it clearly was the best strategy to execute in order to provide a place for the employees and experts within AccuVal to continue their careers, finish their careers, and for the next generation of experts to continue to serve the marketplace. 

FRIEZE:  When we combined the two organizations, not a single appraiser from either organization was left behind. We’re pretty proud of the fact that we were able to take the full suite of talent from both organizations and put them together. It reflects how well-balanced we are, and also how busy we are.  

SCHMITT:  I think when you look at the two entities together, we have amassed an amazing amount of information on the liquidation marketplace in the form of databases: AccuVal with its industry-leading machinery and equipment database, Gordon Brothers with its retail, commercial and industrial inventory databases. And I think that ultimately, by combining these resources, we are without question the number one provider of information to clients on what is factual with regard to liquidation values and what type of results can be attained. 

What will the immediate priorities be for Gordon Brothers-AccuVal?

FRIEZE:  The immediate priority is certainly to get the message out to our customers. We will be visiting all the largest lending institutions to make sure that they have an opportunity to ask questions just like you’re asking today: why was this done, what were the reasons behind it, and what benefits can we expect as a result of the merger.

While that is occurring, on a parallel basis we need make sure that we develop an appraisal product that has a consistent look and feel and represents the highest quality offering to the market.  

Are there benefits that your respective customers will see as a result of the merger? 

FRIEZE:  I think there are a couple. First of all, we will have the largest business development group in the country, which means client service that’s more localized, more familiar to our clients. This translates to a single call that connects them all the services that they may need. So that offers a great customer service benefit to our clients of all sizes across the U.S., Canada, Europe, Japan and everywhere we operate.  
The other benefit is that we now have the opportunity to take the best of each organization and put it together. So while both organizations had methods of delivering the most accurate, on-time appraisal possible, we now are able to conduct an internal benchmark process to improve the product even more and take it to the next level. 

I think if you asked us individually from the organizations that we both had respectively managed, we felt that they were both very high-quality appraisal products. If you talk to the lending community, that’s already well established. And usually the process of product improvement is trying to understand what your competitors are doing and benchmarking that to come up with a better product. We get to do that internally now in great detail.

SCHMITT:  I think you can add on top of that that AccuVal individually operated 15 offices throughout the United States and Canada, so we had a very large footprint with respect to being able to respond to clients quickly. When we combine that with Gordon Brothers’ footprint we now have 25 offices globally, including throughout Europe and Asia, so we are in all the markets where lenders are doing business, and we can certainly respond with not only a strong domestic presence across the country, north to south, east to west, but also internationally, across the 18 different countries we do business in. So at this point in time, for any of the cross-border deals that lenders are undertaking, we can effectively support those transactions, keeping it in-house and under one roof, rather than joint venturing with third-party partners. 

Another top priority for us will be developing industry sector expert teams. The pure size of the organization is really going to enable us to continue building these resources, and I think that’s going to be a real asset to the marketplace. Clients can expect deep expertise in sectors like energy, building products, food and agriculture, e-commerce and apparel, throughout the supply chain.

FRIEZE:  We’re very careful to never say we’re everything to everybody. Beyond all this size, the number of offices, number of people, billions of dollars of dispositions, the trillion dollars that we’ve appraised collectively since inception, what really matters is specific expertise by sector. And we now have more ASAs on staff than all our competitors combined. So with these ASAs and our field merchants throughout the country and the world, we have boots on the ground, on site faster in stores or at the plant. That means there is less time and expense involved in getting us there, keeping it more cost effective for our clients.  

SCHMITT:  And on top of that I would say that we have driven our systems to help the workforce improve efficiency. We continue to be very efficient in terms of times of delivery and cost for clients of all sizes. 

What effect do you think this merger will have on the industry? 

SCHMITT:  Lenders will continue to find that they have a single source supplier here in the marketplace that can handle pretty much any industry segment, all asset classes, both domestically and globally. So ultimately they will find that Gordon Brothers-AccuVal will be a great partner for them, helping provide insight during due diligence and underwriting, bringing real value into their credit processes.   We can help with information for initial proposals to their clients to help close deals. And should those deals ever become troubled, they certainly have Gordon Brothers to partner with to develop exit strategies.

FRIEZE:  A number of lenders have experience lending into some volatile sectors recently like energy, for example. When an industry is stable, it may be fine to hire an appraiser and get a report that provides a value and you underwrite your deal and it sits in portfolio. But when a sector goes volatile, you really need to make sure that you’re choosing a company that has a solid process and an accurate value and that is willing to back it up through the disposition of assets or lending, like we can.

Gordon Brothers does both of those things, including providing Tranche B financing through our commercial finance partner, Gordon Brothers Finance Company. There is no other firm that does both of those things, dispositions and Tranche B financing, behind an appraisal. Choosing an appraiser who offers those related services gives the lender confidence.

We were in a recent situation up in Canada on an energy deal. There was an appraiser of record and, when the deal went south, the lender was in trouble. That appraiser did not even show up to bid at all. That’s not something that you would find with Gordon Brothers-AccuVal. 

Are there emerging trends in valuations that either of you think our readers would be surprised about or that our readers, as lenders, need to know about? 

SCHMITT:  Certainly we have seen that lenders in today’s world have focused a little bit more on the cash flow side of a deal versus the asset- based lending side of a deal. And to combat that, we have certainly helped a number of asset-based lenders enhance the value added during the appraisal process by including certain aspects of a deal that may have been more cash flow in the past. For example, adding brand valuations, or considering the cash flow from a rental company during liquidation, or calculating the value of process-oriented facilities on an in-place basis rather than a removal piecemeal liquidation. We have seen the asset-based lending marketplace in essence try to combat the loss of market share to the cash flow lenders by also taking a bit more of an aggressive strategy and considering different exit strategies than they have in the past.  

FRIEZE:  Rick mentioned it, but brands is probably the most evolving appraisal product. Going back a decade there really weren’t NOLV brand appraisals, just fair market valuations with a liquidation discount done by accounting firms.  

Gordon Brothers was at the cutting edge back then performing brand valuations from the bottom up on a Net Orderly Liquidation (NOLV) basis. We still see a lot of discrepancy between firms that get it right and those that get it wrong. Brands should follow the same rules of the road that you find in any other asset class, NOLV – competing set of financial buyers. Now, together with legacy AccuVal, Gordon Brothers-AccuVal has one of the largest and most sophisticated brand appraisal practices in the world and certainly one of the few connected to a brand group that actually buys and licenses brands.