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,
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
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.
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
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
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