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Ritchie Bros. completes $7 billion IAA acquisition

Updated: Oct 30, 2023

Acquisition Overview

The company, which auctions and sells used heavy industrial equipment last week saw its shareholders vote in favour of the acquisition despite the pushback from Institutional Shareholder Services and Glass Lewis. The proxy advisory firms on March 6 recommended that shareholders reject the deal due to potential risks including a lag in IAA's performance and a drop in stock price since the bid was announced in November. Under the terms of the transaction, IAA shareholders would get $12.80 per share in cash and 0.5252 common shares of Ritchie Bros for each share of IAA common stock they own. Ritchie Bros in January sweetened the cash component of its buyout offer for IAA Inc by 28%, valuing the U.S. auto retailer at $5.94 billion, and secured the backing of a key IAA shareholder who had questioned the initial offer.

Deal Structure

Goldman Sachs & Co. LLC served as lead financial advisor and Guggenheim Securities, LLC as co-lead financial advisor to Ritchie Bros. Evercore and RBC Capital Markets as financial advisors to Ritchie Bros. J.P. Morgan Securities LLC served as the exclusive financial advisor to IAA. Goodwin Procter LLP, McCarthy Tétrault LLP and Skadden, Arps, Slate, Meagher & Flom LLP served as legal advisors to Ritchie Bros. and Cooley LLP, Blake, Cassels & Graydon LLP and Latham & Watkins LLP served as legal advisors to IAA. With the deal having closed, Ritchie Bros shareholders hold 62.8% of the combined company and IAA stockholders own the rest. In connection with the close of the transaction, Mahesh Shah and Chris Zimmerman have stepped down from the Ritchie Bros. Board, effective immediately.

As a result of the completion of the transaction, IAA's common stock ceased trading on the New York Stock Exchange under the ticker symbol "IAA" as of the close of trading on March 20, 2023.

Ritchie Bros. Overview

Ritchie Bros. Auctioneers is a global asset management and disposition company, specializing in the sale of industrial equipment and other assets through live auctions, online marketplaces, and private treaty sales. The company was founded in 1958 and is headquartered in Burnaby, British Columbia, Canada.

Ritchie Bros. operates in over 20 countries, with more than 40 auction sites and multiple online marketplaces. The company conducts auctions for a wide range of industries, including construction, transportation, agriculture, energy, mining, and forestry.

In addition to auction services, Ritchie Bros. also offers appraisal services, financing and leasing options, and a range of other value-added services to help customers manage their assets and maximize returns. The company is publicly traded on the New York and Toronto stock exchanges under the ticker symbol "RBA".

Founded: 1958

EV: 10.86bn

Number of employees: 3,000

LTM Revenue: 1.73bn

LTM EBITDA: $417.17mn

Market Cap: $10.61bn

IAA Overview

IAA, Inc. (International Automotive Auctions) is a global leader in the automotive salvage and total loss auction services industry. The company specializes in facilitating the sale of salvaged vehicles for insurance companies, dealerships, and other organizations in North America, Europe, and Asia.

IAA was founded in 1982 and is headquartered in Westchester, Illinois, USA. The company has more than 200 auction facilities in North America, Europe, and Asia, with a comprehensive online platform that allows buyers and sellers to participate in auctions from anywhere in the world. They offer a broad range of services, including vehicle inspection, transportation, storage, and remarketing. The company's online platform provides real-time access to inventory, bidding, and purchase history, as well as powerful analytics tools to help customers make informed decisions.

IAA is committed to sustainability and has implemented various initiatives to reduce its environmental impact, such as using renewable energy, reducing waste, and promoting recycling. The company is publicly traded on the New York Stock Exchange under the ticker symbol "IAA".

Founded: 1982

EV: $6.638bn

Number of employees: 4,914

LTM Revenue: $2.09bn

LTM EBITDA: $141.3bn

Market Cap: $5.33bn

Industry Insight

Auctions are a popular method of selling industrial products, particularly for equipment and machinery that is no longer needed by its current owner. Auctions can attract a large number of potential buyers, allowing for a competitive bidding environment that often results in higher prices than what could be achieved through traditional sales methods.

One major trend in industrial auctions is the move toward online platforms. Online auctions have become increasingly popular due to their convenience and accessibility, allowing buyers from around the world to participate in a single auction. This has also led to a decrease in the number of physical auction houses, as more and more auctions are conducted entirely online.

Another trend in industrial product distribution is the rise of third-party logistics providers (3PLs). These companies specialize in managing the logistics of distribution for industrial products, including warehousing, transportation, and delivery. By outsourcing these functions to a 3PL, industrial companies can focus on their core competencies while leaving the logistics to experts.

Overall, the industrial products distribution industry is undergoing significant changes driven by advancements in technology and changes in consumer behaviour. Successful companies will need to stay on top of these trends to remain competitive and provide value to their customers.

Strategic Rationale

Ritchie Bros. Auctioneers, a global auctioneer of industrial equipment, recently acquired Insurance Auto Auctions (IAA), a leading provider of salvage vehicle auctions and related services. The strategic rationale for this acquisition was to expand Ritchie Bros.' presence in the salvage vehicle auction market and to diversify its revenue streams. By acquiring IAA, Ritchie Bros. gained access to a new market and a new customer base. The salvage vehicle auction market is a large and growing industry, with significant potential for growth in the future. With IAA's expertise and market position, Ritchie Bros. was able to enter this market quickly and gain a foothold in the industry.

In addition to the strategic benefits of entering a new market, the acquisition of IAA also offered synergies with Ritchie Bros.' existing business. Both companies operate in the auction industry and have complementary expertise and resources. By bringing these two businesses together, Ritchie Bros. was able to achieve cost savings and other efficiencies, such as sharing technology platforms and leveraging marketing and sales resources.

Overall, the acquisition of IAA allowed Ritchie Bros. to expand its business into a new market, diversify its revenue streams, and achieve synergies with its existing business. This strategic move positioned Ritchie Bros. for long-term growth and increased competitiveness in the auction industry.

Long Term Prospects

Ritchie Bros. Auctioneers is a global leader in the auction industry, with a strong reputation and a long history of success. The company has a solid financial position, with a strong balance sheet, consistent revenue growth, and a diverse customer base. These factors, combined with a clear strategic vision and a focus on innovation and customer service, suggest that Ritchie Bros. has strong long-term prospects.

One key factor in Ritchie Bros.' long-term success will be its ability to adapt to changes in the market and in customer behaviour. As the industry evolves and new technologies emerge, Ritchie Bros. will need to stay on top of these trends and continue to innovate its business model and service offerings. This may include expanding its online presence, investing in new technologies such as artificial intelligence and machine learning, and developing new marketing strategies to reach a wider audience.

Another factor that will be critical to Ritchie Bros.' long-term success is its ability to maintain strong relationships with its customers. The company has a strong reputation for customer service and is known for building lasting relationships with its clients. By continuing to prioritize customer satisfaction and building strong partnerships with industry players, Ritchie Bros. can ensure its long-term success.

Overall, Ritchie Bros.' long-term prospects look positive. The company has a solid financial position, a clear strategic vision, and a commitment to innovation and customer service. By staying on top of market trends and maintaining strong relationships with its customers, Ritchie Bros. can continue to grow and succeed in the auction industry.

Written by Oliver Crawford (Balliol College)

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