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The Short Guide to Asset Verifications During M&A

When you merge with or acquire a company, you are taking on an entire portfolio of assets. From real estate to equipment, proprietary knowledge to product designs, each asset needs to be identified and valued during mergers and acquisitions. This process is called Asset Verification or an Asset Walk Down. Most industrial companies make capital equipment purchases on a regular basis.  Much care is taken to ensure the equipment item is fit-for-purpose, competitively priced, and properly accounted for in terms of how the budgeting for funds to purchase (and possibly finance) the equipment is managed.  But, what happens next?  Typically, the equipment is placed into service, maintained, and possibly inventoried on a regular basis.

What is an Asset Walk Down?

An asset walk down is the process of identifying, classifying and validating assets and equipment. It involves simultaneously collecting specific details about different assets. These details include attributes such as the make and model of certain assets as well as serial numbers, product specifications, technical attributes, and certificates of compliance. During the asset walk down process, teams with extensive experience visit every asset on-site and validate each one to make sure the acquisition is complete.

Often, an asset walk down focuses on a major industrial facility or setting but the process is used in different types of mergers and acquisitions. A complete asset walk down will involve the following activities:

Establish the Team and Time Frame:  You will need personnel who understand the equipment and you will need to know much time is available for the walk down.  Typically, a team of 2-3 members will be able to verify 150 assets per day if one of the team members has a strong knowledge of the various equipment types involved.

Identify the Collection Method:  You will need to determine how will the team collect data.  Will they record data on paper or use an app on a tablet device?

Plan What Information is to Be Collected:  You will need to instruct the team on what information is to be collected and how it is to be organized.  Usually, at a minimum the team will collect information from data plates (snapping a clear photo of the data plate is a best practice), making an observation on the visible condition of the equipment, and noting the location of the equipment.  Additional information to be collected by the team might include compliance certificates associated with the equipment and registers that apply to the equipment (for example fire detection systems on board a vessel or in a factory may utilize a register to track location, working condition, etc).

Resolve What is to Be Done with the Information:  In short, why is this information being collected?  Is the data feeding into an enterprise management system for assets?  If so there is almost certainly a hierarchy or specific database structure that the information will be entered into.  If so the team collecting the walk down information will hand-over the data to a data processing team.  So, it’s key to make arrangements for the walkdown team to have effective communication with office-based teams performing data entry.

Understanding the Need for Asset Verification

At first pass, asset verification may seem unnecessarily in-depth, but there are good reasons for its thoroughness. Let’s look at each one in turn.

Validation of Capital Assets and Spares: It is extremely important to verify and validate the presence of any assets and equipment onboard to complete an acquisition. For instance, in the case of drilling companies, an asset walk down is a great tool to have during the acquisition of new rigs and corporate warehouses. Often, the asset walk down or asset verification proves to be vital in deploying the newly acquired rigs to the job sites in a short period of time.

Inventory Verification: Further, companies should be cognizant of the necessity to physically verify inventory as well. There have been many instances where millions in inventory were missing after the acquisition. The culprit was not pilferage; it was shrink due to the employees not recording transactions in the inventory system.

Data Migration and Systems Integration: Asset walk downs or asset verifications also help with data migration and system integration. It provides a fresh start with regard to data. Teams validate all the equipment on board and often create a new list to corroborate the details extracted from the previous systems. As such, many times, performing an asset walk down will completely solve data problems like duplicate entries, missing fields, competing formats, and so on.

 

Performing an Asset Walk Down

Data migration is a huge hurdle for companies because it is very time-consuming and labor-intensive. In the case of offshore drilling rigs, you will need three to five members and possibly more depending on the rig size and your timeline for completion.

Further, you have to have a system in place for recording and organizing all the information you collect in the asset walk down process. Accuracy is very important. If not done properly, the recurring problems from a mistaken or omitted entry will result in some serious compliance and regulatory issues.

Mergers and acquisitions are important steps in the business cycle. M&A is useful as a way to exit a business as well as a way to grow, but the process is not as simple as buying or selling something like a car or property. You need help to make sure that your asset walk down is completed properly and accurately. RigServ can help. Contact us to learn more about our asset verification services and how we can help your company prepare for a merger or acquisition.

Author- Rahul Thottempudi, Industrial Engineer

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