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Scrap & Salvage Yards
We have years of experience in this industry for the valuation of the business, equipment and real estate. Let us help you with our valuation consultation in all areas of the valuation of scrap/salvage yard businesses. Below is a brief synopsis of the industry.
Description of Business
Establishments primarily engaged in assembling, breaking up, sorting, and wholesale distribution of scrap and waste materials. This industry includes auto wreckers engaged in dismantling automobiles for scrap.
General Industry Information
According to the recent US Census, there were 11,731 establishments that sold recyclable wholesale materials in the United States. Combined, these businesses accounted for annual sales of $28.9 Billion, an average of $2,463,558/ firm. Many businesses in this industry usually focus their operations on recovering one type of material. The most common are metals (iron, steel, aluminum), attained from the dismantling of vehicles and building demolition. Frequently, scrap and recycling yards will process several types of materials, assuming that the facility size and equipment mix are sufficient.
Scrap yards sell processed, compressed, and bundled recycled material to manufacturers for use as raw material. The majority of the client base includes steel mills and car manufacturers. This industry has undergone vertical integration initiated by large manufacturing firms, who opted to expand their operations to include a recycling branch.
A significant amount of the work involved relates to the sorting process. Extraction of hazardous materials (most commonly oil, PCBs and lead) is required prior to shredding or shearing. Environmental and safety regulations are inherent in these types of businesses, given the chemicals, hazardous waste, and oily parts involved (such as car batteries and gasoline tanks). Permitting is usually required for processing, storage, and collection of these materials. OSHA is active in maintaining worker safety standards, given the potential hazards of large crushing, shearing, and storage equipment.
There are many independent operators in this business, although their market share has been threatened by vertical integration pressures from large firms. Acquisition of independent operators is particularly attractive to commercial companies reliant upon steel inputs (such as American car companies).
Scrap yards are affected by the ups and downs of wholesale steel prices. Generally, scrap steel prices are indicative of an economy’s condition, where high scrap prices are associated with a healthy economy demanding the purchase or construction of equipment/buildings. The scrap metal business has benefited from China’s current infrastructure development projects. With most of the world’s steel being transferred to the region, the market has experienced worldwide price increases.
The industry is affected by organized labor, most notably the American Steelworker’s Union.
Red Flags and Risks
Scrap metal businesses tend to suffer during low points of the economic cycle. Potential buyers of a scrap yard should gauge the company’s performance during both high and low points for financial feasibility. Owners of scrap yards and recycling centers are well acquainted with local distaste for such businesses. Unsightliness, coupled with noise pollution and high traffic, account for the general unpopularity of recycling businesses in neighborhoods. Typically, city permits are required for operation, and can be difficult to come by. Inspections and forms of regulation may be necessary for operation. Buyers would be wise to spend a great deal of time focusing on equipment quality during the due diligence period. On-site equipment for shearing, lifting, transporting, and weighing should be evaluated for utility, condition, and safety. Vehicles involved in transit need to be well maintained and licensed to transport waste materials. Lastly, these types of businesses face issues of ground and water contamination due to hazardous deposits. Auto junkyards house heaps of parts, which may be dripping with oils and other auto fluids which can seep into the earth. Other hazardous types of materials, containing stored energy (pressurized containers) or flammable substances are hazardous to nearby workers and businesses. Care needs to be taken when handling piles of refuse.
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