Used kit can be a bargain if you can take away the risk
Monday, June 25, 2018
Buy right or buy twice. It’s sage advice and when it comes to equipment, the quandary that print has to deal with is whether to purchase new or secondhand. Some will instinctively want to use a brand new machine, others will calculate that secondhand offers better value.
Of course, buying secondhand equipment carries a risk and, as with other products, the higher the value of the purchase, the greater the risk. The issue at hand is that while lawyers are used to oversee large purchases, such as real estate or commercial entities where ownership is readily identifiable through a public register, other assets are often bought without legal advice and with only the most basic of due diligence despite their high cost. With some used pieces of print heavy metal costing £700,000 and more, making secondhand purchases clearly needs thought.
For James Williams, managing director of Curtis Packaging, the buying process involves a number of considerations – including, not unsurprisingly, cost. He says that while price is a major deciding factor “often the decision is based on availability as secondhand equipment is often available a lot quicker than new”. But Williams also makes the point that he believes the build quality of older machines to be “far superior to a lot of newer equipment. Pressure on the machine manufacturers has seen them trying to keep prices low and inevitably this has seen some changes in materials and the country of origin. For me there is an element of ‘they don’t build them like they used too’.”
John Roadnight, director of used machinery marketplace PressXchange, sees a number of benefits for the trade in secondhand: “Buying a well-priced and productive used press or bindery [kit] will significantly reduce the investment a printer will need to make, and in many cases, allow them to enter a market which they could otherwise not afford to enter.”
Equally, buyers of secondhand kit can take advantage of past designs. Mark Sheldrick, managing director of used equipment supplier DPM, says that “while there have been significant advances in digital equipment the majority of press and bindery equipment hasn’t moved on.” He reckons that kit built from 2000 onwards, will, with automation, still have a place in a premium print shop. He thinks the decision ought to hinge on the technology and production methods employed around the factory and says “there’s no point in buying a top of the range press when you have no MIS or link with pre-press and colour monitoring.”
It’s a point echoed by Roadnight who says, in contrast to Williams, that “graphic arts machinery today, particularly from the top manufacturers, is built to last; it is reliable and forgiving and rarely goes wrong.” Simply put, he reckons that presses today with 200 or 300 million impressions on the counter are a sounder investment and require less maintenance than a machine made 20 or 30 years ago with a fraction of the impressions.
Ultimately, the decision is all about return on investment – if a printer pays 60% of the price of a new machine for a used one which is 90% as productive then they will have a competitive advantage over someone who has bought new. By extension, buying secondhand offers more ‘bang for your buck’ in that a printer can buy to a higher specification or with more units than if they were buying new.
There’s an obvious question to be posed. Should printers buy direct or via a dealer? According to Roadnight there’s little choice as he believes that most pieces of printing equipment are bought by dealers, “so at any one time there is a very limited amount of machinery on the market that can be traded printer-to-printer”. Sheldrick agrees: “There has always been significantly more used equipment sold in this industry than new – on presses maybe as much as 10 to one sometimes.”
But Roadnight says this is not a bad thing because, except in very rare circumstances, it’s always easier and safer for a printer to use a dealer both when selling and buying.
Of course, buying through a dealer means paying a margin, but good dealers remove the hassle from quite complex transactions. The reality is that despite best efforts, often in private sales both the buyer and seller are novices, unaware of potential problems and pitfalls – “doubly so where the buyer and seller are in different countries,” adds Roadnight.
There is logic in using a professional to sort the good machines from the bad – someone who is set up to handle the logistics of the sale, from dismantling, loading, transport, re-installation, servicing, electrical work, insurance, trouble-shooting and training. But to this Roadnight adds another thought: “Through his contacts a dealer has access to a very wide range of equipment – not only what is currently listed on sites but what might be coming available as part exchange, or even what a printer might be persuaded to part with if the right deal were offered.”
And there’s more. Apart from have the lion’s share of the market and easing the process, there’s the need to ensure that correct title – legal ownership – passes to the printer on payment. “Title,” says Sheldrick, “is important. A buyer should check HPI (as they might do when buying a car) as most banks have their financed equipment on a register.” He emphasises that clear wording on the contract and sale invoice is essential so that upon payment the buyer receives title with no encumbrance and adds “that printers could ask for a letter from the company’s auditor to confirm title rests with the seller”. In other words, the auditor will guarantee that the seller has the right to sell the equipment.
Sheldrick recommends caution if buying direct. “With private deals funds must be passed before a bolt is removed from the press – a risky business if you are new to it.” His advice is to shop around and check pricing “and if nothing else go through a reputable dealer to give peace of mind and security in what for many is the most significant purchase that a printer will make.”
And this is precisely what Williams does: “We usually purchase second equipment through a reputable dealer and would always undertake some fairly comprehensive testing before completing on a purchase – if they are reluctant for you to undertake a trial this should ring alarm bells.” He adds that a good dealer will usually offer a short-term warranty; further, when buying from a dealer Williams considers the issue of title to be the dealers problem – “it’s not yours and is one less thing to worry about.”
Notably, Williams does his homework and makes sure that what he is buying is fit for purpose: “We try not rush into quick decisions on purchasing equipment, but you need to be prepared to move fast if the right kit suddenly becomes available.”
Seek and ye shall choose
It doesn’t take much to search the web to find suppliers of printing kit, so how should a supplier be selected?
Roadnight strongly suggests a common sense approach. He advises asking peers, looking at dealer websites, and asking for the names of customers dealers have dealt with and contacting them. “You can also ask for financial information on a dealer’s financial status – it’s readily available on the web in many countries – and where appropriate visit them... air fares are a lot less costly than a bad investment.”
Sheldrick also advises checking a dealer’s balance sheet “to make sure that when offering a machine that they can afford it themselves and they are not risking the buyers deposit or funding”. But he also advises printers to look for dealers with their own engineers and premises while making sure the guarantee is actually worth the paper it’s written on.” An ill-planned purchase short on due diligence could prove commercially fatal.
But even a marketplace website that is ostensibly well run requires some management of risk; the likes of PressCity and PressXchange, do not, says Roadnight, offer guarantees on their advertisers, but try to weed-out doubtful companies. He adds that when complaints arise, they tend to relate to delays in delivery, occasionally about a part missing, but rarely about the accuracy of the description or the quality of the machine supplied. He says: “While we have no legal standing, we will act as a go-between or mediator.”
But what of paying for equipment? Sheldrick says it’s much easier now to finance secondhand purchases; “the banks and specialist asset-based lenders are very much open for business.”
Roadnight agrees, but adds that the answer very much depends much on the equipment: “Traditionally digital presses are hard to finance when new and even harder when used as fast technical developments mean they depreciate more quickly. At the other end of the scale every finance company rep salivates when he or she hears the name Heidelberg, and all the main manufacturers are treated with great respect - for both new and used.”
Even so, the world of finance has developed well in recent years and most dealers will have a tie to a finance company that they can introduce prospective clients to. But as Roadnight says, “if a client’s balance sheet is not strong enough to support a purchase, the ability of a dealer to resell the machine if things go wrong or even to offer a full or partial buy-back guarantee can oil the wheels and make a deal happen.”
And from a buyer’s standpoint, Williams has not had any issues with financing his equipment but explains that he “would usually only purchase reputable brands that would retain a decent value”.
Maintenance is still key
Lastly there’s the matter of what happens post-contract. Buying direct leaves purchasers to fend for themselves, but as Sheldrick says, “when buying through a reputable dealer support is all part of the contract.” Interestingly, in his experience dealers mostly use former manufacturing staff to install product and train employees. Manufacturers or their agents sometimes get involved in the process to ensure that the customer receives the best install and training.
Of the dealer process Williams is very positive. He says that in general those he works with are very good – “a lot of their business is based on reputation, so they have to be reactive to any issues.” He adds that manufacturers “can sometimes be a bit tetchy if you have chosen to purchase second hand as opposed to new from them but they usually get over this once you start purchasing spares.”
The question of titles
It is important to check what you are buying and there is no substitute for going to look at an asset on site, noting down serial and model numbers for incorporation into the sale contract.
Be inquisitive and ask questions – who are you buying from, where is the item located and if it’s held by a third party, why?
Ask specifically who owns the asset in question. If there are several companies recorded at Companies House with a similar name (all being part of the same group), make sure you address this point. Company names can change over time or a trading business can switch from one entity to another while standard form sale contracts may remain in the name of the old (possibly dissolved) company. Do insist on the proper name of the seller being entered in the contract along with the company number (which never changes).
Make it your business to know who the person you are speaking to in relation to the sale is and their job title and role at the seller. Does the person have authority to bind the seller? If in doubt, insist that the contract is signed by a director in the case of a company, the individual seller themselves, or a partner where a partnership is involved.
Who presently owns the asset? If this is the seller, what proof of ownership can they offer? If not the seller, are they acting as agents for the actual owner and what authority can they show to evidence that?
English law recognises several types of ownership with each being given its own particular set of rights and position in a hierarchy of potential ownership claims.
The pinnacle of the ownership pyramid is the holder of legal title followed by other types of title, such as possessory title (assets in your possession). It is important to understand that while a seller may hold some title to the assets they are selling (such as possessory title) they may not hold the legal title, which may be claimed by a third-party. When buying an asset, it is crucial to understand what title the seller holds, and what title it will deliver to a buyer. It is always worth asking for warranties (guarantee) and representations as to the seller’s status and title.
Another tip is to consider a credit search as it may well reveal existing hire purchase agreements.
It’s most likely that the third-party rights encountered will be in relation to a lender’s security or an attempt at retention of title by a seller further up in the supply chain.
Conducting a search of a seller’s charges register at Companies House prior to making a major purchase will reveal all registered charges over the seller’s assets. These searches will reveal the exact terms of the charge documents including the detail of fixed (over a given asset) and floating charges (over company assets as a whole).
If an asset is subject to a fixed charge, then the lender’s consent to the sale and release of that charge should be sought prior to (or on completion) of the sale. If the asset is subject to a floating charge only, then a buyer with knowledge of a floating charge should still insist on a “letter of non-crystallisation” from the floating charge holder that allows the sale.
The law in relation to retention of title clauses can be quite complex and whether one is enforceable or not depends on the type of asset involved, the drafting and incorporation of the clause in question, and the facts surrounding the transfer from the original seller and onwards from the secondary seller. It is possible, subject to certain statutory protections for a person in possession to pass good title to a buyer even where an earlier retention of title clause reserves title for the original seller or owner. This, however, depends on the circumstances.
It is also worth highlighting that other third parties may gain rights over the assets in question, such as a ‘baliee’ – a person with possession of the asset, but not ownership, who can retain possession until paid for their services or storage. This is particularly important when considering purchasing from an insolvent seller (or one in poor financial health). In certain circumstances it may even be appropriate to obtain a price reduction on the undertaking that the buyer pays the warehouse/repairer (baliee) directly to obtain release.
In certain situations, say a sale by administrators of a company, it will be almost impossible to obtain warranties as to title and statutory protections will likely be specifically excluded. Here the buyer will be purchasing the assets at a significant discount and so the risk of non-passage of title is balanced. However, that’s not to say a buyer should enter in to such contracts without a full appreciation of the facts and risks. Provisions which place dealing with third-party claims on the buyer in pre-pack sale agreements can turn out to be time-consuming.
On high-value sales, a winding-up/bankruptcy search against the seller should be undertaken to mitigate the risk that the sale is voided by a court.
Source: Eversheds Sutherland