An Interesting Case in Manufacturing Valuation

I’ve done many manufacturing valuations over the years but this one was special. One of the unique things I get to do as a Certified Equipment Appraiser is go to interesting businesses and see operations that most people will never see the inside. One of these was a chocolate factory, and no, nothing like Willy Wonka, however, very interesting just the same. Not only was it interesting in general but was also a challenge as an equipment appraiser because it required specific knowledge and extensive research. To my knowledge there’s only 6 of these specialized chocolate factories in the world so it’s not every day that one needs to be appraised.

I had the opportunity to value a high-end chocolate manufacturing business for the sole purpose of collateral on an equipment loan to expand the business. Because the economy was so good, the demand for their product of an assortment of fine chocolates was excellent around the world, especially Europe. I knew the assignment would be fun and interesting and an added benefit was I had the opportunity to sample some excellent candy bars.

The production facility as assembled had a nominal capacity production line of 1,000 kilograms of chocolate products (assorted bar sizes and types) per hour or 600 tons per month. And let me tell you, walking through the facility and seeing how all these bars are made, incredible! The 600 tons is based on 24-hour day production for five working days per week. The typical work week is Monday through Friday. According to the plant manager, the plant was designed and installed with adequate space for future expansion and increased output which they were going to do using my valuation. It was unfortunate though to find out that this facility which had 25 employees just a few years back was now down to 3 due to a computer software program designed to allow the production process to be fully automated which could now be operated from within the factory or remotely on and / or off site. In the case of this plant, operated from home office in South America.

This was good for the plants bottom line however not good for the 22 laid off workers, some that had been there for over 15 years.
Almost all the process machinery and equipment were installed new and are mostly of Brazilian original and were manufactured in (Brazil) in 2007 with upgrades in 2008, 2009 and 2010.

The main sub-assemblies (operating centers) of the assembled facility are the Solid Raw Material Unit, Liquid Raw Material Unit, Rework and Nut Milling Station, Solid Ingredients Pre-Refining and Dosing Unit, Liquid Ingredients Dosing Unit, Chocolate Mass Conching Unit, Chocolate Mass Refining Unit, Chocolate Mass Storage Unit, Chocolate Moulding And Solidification Unit, and Chocolate Packaging and Finished Products Storage.

Products processing and manufacturing is supported by electric utilities, hot water system provided by two stainless steel 27-kilowatt electrical boilers, a 100-ton chilled water system and compressed air by two 22.8-kilowatt Ingersoll-Rand air compressors systems.

The moulding and solidification area and the packaging and storage area are air-conditioned space, conditioned by a new 75-ton Carrier Conditioned Air System. However, the air-conditioning system is a part of the building and is not part of this appraisal.

For this appraisal I relied primarily on the purchased invoice and contracts provided as well as the consideration of other price quotations of similar assets. A Cost Segregation Method was also considered.

The inspection process took several hours, and the data collection and valuation process took dozens of more hours to estimate a fair market value for the bank.

In the end, the client and lender were both beyond satisfied, and the plant was expanded to accommodate the increasing orders for chocolate bars. And for me, I left satisfied knowing I met the challenge and increased my knowledge and expertise in valuing manufacturing businesses.