What Is It Worth?

By Bob Martin - General Manager - March 15, 2006 - Featured in Trenchless Australasia

"What is it worth?"

That is a question that most often comes from sellers, but one that I've also heard many times coming from buyers as well.

The HDD industry has seen a fair bit of volatility over the last few years. In the months leading up to the downturn in 2000, machine prices were high, demand was high, and payment for jobs was high. It was a period where anyone with a backhoe or pickup truck to put up as collateral was being offered credit to buy a machine by every drill manufacturer. Unfortunately, the industry was a victim of its own success. The high level of competition from people not necessarily skilled in drilling dropped the per-foot price of drilling through the floor and companies began falling off the radar left, right and center, unable to afford to run at such slim margins.

The early part of the new millennium saw a correction take place. Drills little wear and low hours could be had for pennies on the dollar, a result of them being repossessed by banks from companies that could not survive the downturn. The international market went crazy and machines moved quickly from the suppressed markets of North America to the developing ones of Europe and Asia at an enormous rate.

The last few years have seen a stabilization of sorts take place in North America. Drill prices have risen back to levels that are more in line with other construction equipment. A more cautious approach by manufacturers and drillers in terms of machine pricing and job quotes have resulted in a much more stable industry.

Which leads me back to the original question presented as a topic for this article, "What is the drill worth?"

Quite simply, the piece of equipment is worth exactly what someone will pay for it.

That may sound simplistic, but it is very true. The HDD industry has no rhyme or reason associated with it in terms of equipment value. A drill purchased new for $80,000 might only be worth half of that a year down the road if no work is currently on the market for it in a certain area. On the other hand, an older machine in high demand might fetch almost new prices if supply is short in the same area.

Going back through our records from the last six years, I can say that used drill prices have almost doubled since the early part of this decade. Stories of large HDD machines going for less than twenty thousand dollars at auction used to abound in those first years of the downturn, while now it is uncommon for many of those machines to go for less than one hundred thousand dollars on the open market.

This volatility, combined with a very topographically driven demand, makes valuing a machine very tricky. Factor in a very distinct trend favoring one manufacturer over another in a given area, and you get a most confusing and complicated scenario. Fortunately for companies such as ours, a more global perspective allows a better valuation that can be gleaned from averages over much larger territories, or in some cases, the entire world. This perspective helps us serve our customers in a way that not many others can.

There is no set of rules, and unfortunately there is no "HDD Black Book" with an industry recognized set of values for equipment in this niche industry. Each piece of equipment must be individually rated for year, hours, condition, and territory before it can be valued. If you are thinking about buying or selling a piece of HDD-related equipment, I highly recommend getting in touch with a professional broker. Their expertise in the process will ensure that buyers do not overpay for a package, and sellers do not over or under-value a package that they are trying to sell.

This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither HDD Broker LLC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.

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