CIF in cooperation with Northumberland County (County) has completed a present-day valuation of MRF equipment at the County’s facility in Grafton Ontario.
The County constructed the 55,000 square foot facility in 1996 and has owned and operated the MRF since that time. Municipal staff manage the facility and provide all required labour. Waste management services are a single-tier function in the County and the curbside collection program includes 38,000 stops. The County currently processes approximately 16,500 tonnes per year including County sourced recyclables, as well as material from the City of Kawartha Lakes received on a contract basis.
The Grafton MRF currently operates as both a single stream and two-stream facility. The County is transitioning to a two-stream collection system in September of 2019, in-order to improve the quality of sorted materials and reduce costs.
A specialist was retained to assist in the valuation effort. The Grafton MRF is considered to be in good condition with required equipment upgrades and replacements undertaken over its operating life. The overall age and condition of the MRF equipment is typical of a well-managed municipal operation with a long-term outlook.
Equipment valuation for an operating MRF is highly dependent on whether the MRF is considered a ‘going concern’ by the market place (i.e., defined primarily by geographic location or a commercial customer base); or whether the valuation is based on auction or scrap value alone. A general discussion of each situation is provided below.
Equipment Valuation as a Going Concern
A hypothetical potential purchaser of a MRF may wish to acquire a facility to expand their current recycling operations into a new geographic market area, or potentially to block a competitor from gaining market share.
A purchaser with no processing operations may also wish to buy a going concern to cost-effectively enter the processing business to round out their waste management or commodities business.
Valuation of a going concern is highly subjective because if its dependence on market conditions. A purchaser may, for instance, pay up to 50% of the initial installed cost of the equipment if 50% of the expected equipment lifespan remains.
Equipment Valuation based on Auction or Scrap Value
If there is no interest in purchasing the MRF as a going concern, auction or scrap is the only other realistic option to recover value from existing equipment. Generally equipment will sell for 10-20% Initial Value assuming 50% Remaining Life. Often however, removal, shipping and re-installation costs to another MRF consume most of the in-place theoretical value of a piece of equipment.
Relative Valuations for Equipment
Every MRF represents a unique set of circumstances with respect to valuation so the actual dollar value of the equipment at the Grafton MRF is not necessarily informative to others. However, the relative valuation between a going concern assessment and an auction/scrap concept may be useful to owners/operators.
Other MRF Valuation Considerations
The preceding discussion has focussed solely on MRF equipment. In order to develop a complete valuation assessment for a MRF, owners should also consider:
- Fair market value of building(s) (as MRF or repurposed);
- Fair market value of property if owned; and
- Any marketplace goodwill valuation for ongoing MRF operations.
Equipment valuation combined with a current real estate and building appraisal, can provide an owner with a good foundation for determining the potential sale value of a facility. To determine whether any goodwill market potential exists, additional analysis of the revenue from existing commercial accounts combined with local market potential is required.
As mentioned above, the location, size and condition of a particular MRF can significantly affect actual valuation. MRF owners may wish to complete the above-referenced detailed evaluations to assess their particular circumstance.