(Reprinted
from BarterNews issue #36, 1996.)
"We
are all challenged to make the best use of our resources so that
our companies can thrive and play the important role on the domestic
or international stages we believe they can."
-Arthur Wagner, President, Active
International
I
want to thank everyone for attending this important and, hopefully,
profitable panel discussion. For the past few days everybody has
been focusing on the issue of investment recovery, or how they
can get a stronger yield from some of their capital investments.
That
issue, as you know, is critical not just for those individuals
in the oil and gas industry, or chemicals and pharmaceuticals,
or power companies, or telecommunications, or forestry, or consumer
products.
Investment recovery is critical in virtually every industry. We
are all challenged to make the best use of our resources so that
our companies can thrive and play the important role on the domestic
or international stages we believe they can.
One
of the more frightening things about business is that our investments
may only have a single life-span. That is to say that when the
usefulness of products, services or the materials and assets used
to create our products have gone through their life cycles, they
no longer have the opportunity to help the bottom line.
When
they can no longer help the bottom line, they must be retired,
mothballed, written down, liquidated or otherwise rendered a burden.
That is not only a frightening thought to us, but to our customers
or rate-payers who will have to participate in that uselessness.
Large
non or under-performing assets have the ability to stop or slow
the growth we anticipated and planned for. At times, we can determine
the time when an asset will stop performing. We can take some
of the sting out of that by building in obsolescence into our
forecasting. We may have to watch our bottom line get shakier,
but at least we know it's coming.
Other
times, an asset becomes non-performing at a time when we don't
expect it. The cost of an unforeseen repair being so high that
it may make little sense to undertake it. Real estate that falls
below market value at the time we had anticipated selling it.
The cost of waste disposal jumping due to new regulations regarding
disposal. Computers reaching the point of no return because of
an increase in the size of our company, and the on-line requirements
to make a new network advantageous or necessary.
Remember,
regardless of the reason why an asset is no longer useful, its
lack of performance will affect our business. The challenge then,
is to make those assets perform for us once again. Can something
that once had a useful and profit-making life return to that role
and contribute to the bottom instead of taking away from it? I'm
happy to say that the answer is a clear and resounding yes.
Today,
there are mechanisms in place to profit from your assets a second
time. The corporate barter industry, of which my company (Active
International) is a part, is helping large non or under-performing
assets provide profit for their owners. How? By trading these
assets for other, very important and useful goods or services.
You
can trade your assets, which traditionally brought little through
liquidation, write-downs or markdowns, to a corporate barter or
trading company, which can provide you with up to full wholesale
or market value, in the form of a trade credit.
That
credit can then be used to acquire a variety of opportunities
including electronic or print advertising, and or goods and services
necessary to operate your business. In terms of media, it is in
the form of a client's normal media plan, submitted by the agency.
In actuality, the process is simple, the agency submits the media
plan, including traditional costs, and the barter company implements
it. The only difference is that your under-performing or non-performing
assets are used to pay for it.
The
same holds true for goods and services. Here again, the client
indicates which goods and services it requires, including such
things as printing, computers, travel, telecommunications services
and much, much more...and the barter company will provide it.
Once more, the only difference is that your under-performing asset
is being used to help pay for it.
What
becomes of the asset? When possible, the barter company will remarket
it through liquidation channels if it has any resale value. In
the case of real estate it can sell it through its channels, or
can even lease it back to the client if it still has some use
to that client.
This
gives the client the opportunity to avoid taking a significant
or otherwise serious loss on the asset, and receive full wholesale
or market value for it.
My
company has great success in dealing with large non or under-performing
assets. Here are a couple of examples of what has been possible.
A
large company owned a teleflorist company that was no longer performing
up to expectations. The company sold 69% in convertible debt to
Active International, which paid for it in the form of a trade
credit against media. Now, the company also had several divisions
and other companies in other parts of the world.
Since
Active is currently acquiring media in 35 markets around the world,
the parent company was able to utilize the credit for media purchases
its other companies and divisions needed to make. They recorded
a full sale and conserved a significant amount of the cash they
would have ordinarily expended on the media purchases.
In another instance, a very large international insurance company
was able to dispose of under-performing loans and REO assets at
full book (or marked to market) value. The trade credits they
received allowed them to reduce their core business marketing
expenses by 20%.
Another
time, an international credit card issuer received full debt value
for aged credit card receivables in the form of trade credits,
while reducing their marketing cash expenses by 15%.
Finally,
a national consumer goods manufacturer received 100% of book value
against real estate sales which otherwise would have resulted
in a 75% loss.
You can see that when deftly used, a corporate barter company
is actually a financial services company. Through trading your
under or non-performing assets, which were destined to result
in serious losses or write-downs, you can finance a number of
other programs, such as media or a host of other goods and services.
But
I don't wish to limit the size of our playing field here by suggesting
its only your large assets that can be traded in order to finance
other purchases. It's also the products and services that your
companies produce or provide on the front end.
Some barter companies, and Active is one, are prepared to acquire
such products as natural gas, shipping rights, forestry and paper
products, chemicals and industrial components (and more) in exchange
for the same trade credit.
We
will then remarket those products through channels you don't currently
possess or through distribution chains you aren't currently part
of. In fact, our clients set forth where we are permitted to remarket
their products and to whom. The barter company will contractually
agree to sell to only those buyers you agree to.
Active has also been successful at creating trading programs that
are also linked to our clients' vendors. This allows our clients
to utilize our trade credits when paying their own suppliers for
the raw materials or other products and services they need to
run their businesses.
We
have instituted an industry-first program that calls for those
credits linked to vendors to be insured, thus guaranteeing their
value. This makes your vendors secure in accepting Active's trade
credits as part of the payment you make to them.
We are insuring these credits through major insurance providers;
and because they are guaranteed the holder may book those credits
as payment when they are received, as opposed to when they are
used, which is the traditional barter accounting method.
This
gives you, the client, an enormous leverage with your suppliers.
You can agree to a longer contract period with your supplier,
for example, if they are willing to accept these guaranteed credits
as part of your payment. If not, there are likely to be other
suppliers who will. Insured trade credits can be of enormous help
in negotiating the best terms you can.
So you see, corporate barter can provide you with many more options
than you originally thought. As deregulation becomes the way of
the world, we anticipate in a few years being able to acquire
excess capacity of electricity providers and wheel that electricity
to clients far outside the service territory. That will give the
utility latitude on days other than peak. The same goes for natural
gas. We will acquire and move gas during summer months when there
is adequate pipeline space.
The corporate barter industry in the next four years leading up
to the year 2000 will look very different from the companies a
few years ago. Today, the barter industry exceeds $7.5 billion
in revenues. I'm happy to say that my company already exceeds
$500 million in yearly revenues.
The
services corporate barter companies provide will continue to expand,
and will offer clients so many more options. Not only for assets
that are not performing or performing under expectations, but
as front end components of your marketing plans. That's not just
in North America, but globally. At present, we have ten offices
in nine countries so that we may link a client's problem with
a worldwide solution, if necessary.
We suggest you see barter as a guarantee for the sell-through
of your products, and maximize the benefits you receive from operating
at full capacity. The barter industry will acquire what you can't
sell, or what's been used up, or what no longer has a useful life.
By
looking at corporate barter as opportunity for profit, you can not
only recover the investments you've made but can move profitably
into the next century.
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