Nov 7 (Reuters) - Canada's Ritchie Bros Auctioneers Inc , which sells heavy industrial equipment, on Monday agreed to buy U.S.-based vehicle marketplace IAA Inc in a deal valued at about $7.3 billion, including debt.

The cash-and-stock deal, which includes about $1 billion of debt, will allow Ritchie to tap into a growing market for heavy machinery and equipment, salvaged cars, trucks and motorcycles, as well as auto parts.

The tie-up will also give Ritchie greater scale, while boosting its ability to cross-sell services across those industries and generate newer, fee-based revenue streams, experts said.

News of the deal, however, was not well received by Ritchie's investors, who view the merger as an expensive bet at a time when tie-ups in the automotive industry are facing heightened scrutiny from antitrust regulators, according to analysts.

U.S.-listed shares of Vancouver-based Ritchie were down over 18% in Monday afternoon trade.

Shares of IAA, which beat third-quarter revenue expectations on Monday, were down 2.2% at $38.39, well below the purchase price of $46.88 per share.

"The stock is weaker because there is an equity component to the deal, and there will be a competitive review before the closing," William Blair analyst Lawrence De Maria said.

NEW MOMENTUM

The deal was many years in the making - according to a person familiar with the matter. Ritchie has explored a merger with IAA, since it was spun off from vehicle auction company KAR Auction Services Inc in 2019.

However, talks gained momentum earlier this year after activist investor Ancora Holdings Group pushed IAA to replace its CEO John Kett or sell itself, the source said.

Ritchie, which connects sellers and buyers of everything from construction to mining equipment, had a market value of about $6.9 billion as of Friday, while IAA was valued at $5.3 billion, according to Refinitiv data.

Both companies have benefited from rising demand for used equipment in a highly fragmented global market with annual volumes estimated at over $300 billion.

Ritchie was the largest equipment auction company with about $5.5 billion of gross transaction volume last year, the company said in a recent regulatory filing.

IAA stockholders will receive $10 in cash and 0.5804 shares of Ritchie common stock for each IAA share held, the companies said.

The purchase price represents a premium of about 19% to IAA's stock close on Nov. 4 and reflects a deal multiple of 13.6 times IAA's last 12-month adjusted earnings before interest, tax, depreciation and amortization (EBITDA).

Ritchie CEO Ann Fandozzi will head the combined company after the deal closes.

The company has secured about $2.8 billion in financing commitments from Goldman Sachs, Bank of America and Royal Bank of Canada.

The combined company is expected to generate "hundreds of millions of dollars" of cash flow, which will serve to pay down the debt that is being used to finance the acquisition, according to a person familiar with the matter.

Goldman Sachs & Co. LLC served as lead financial advisor, while Guggenheim Securities LLC served as co-lead financial advisor to Ritchie Bros. Evercore and RBC Capital Markets also advised Ritchie Bros. Goodwin Procter LLP, McCarthy Tétrault LLP and Skadden, Arps, Slate, Meagher & Flom LLP served as Ritchie Bros. legal advisors.

J.P. Morgan Securities LLC served as financial advisor to IAA. Cooley LLP and Blake, Cassels & Graydon LLP served as legal advisors to IAA. (Reporting by Kannaki Deka in Bengaluru and Anirban Sen in New York; additional reporting by Abhijith Ganapavarm and Pratyush Thakur; Editing by Devika Syamnath, Maju Samuel and Tomasz Janowski)