‘Flawed and rushed’: Investors rebuff Ritchie Bros.’ US$7B deal for IAA

IAA shareholder unhappy with so-called 'sweetheart deal'

Ritchie Bros.' is hoping to acquire auto retailer IAA in an acquisition deal worth US$7.3 billion | submitted

Investors are pushing back against one of B.C.’s biggest acquisition deals of 2022 – a deal one group of shareholders is calling “flawed and rushed.”

Burnaby’s Ritchie Bros. Auctioneers Inc. (TSX:RBA) (NYSE:RBA) revealed last week it was seeking to acquire American auto retailer IAA Inc. (NYSE: IAA) in a deal worth US$7.3 billion, including US$1 billion of IAA’s debt.

Ancora Holdings Group LLC, which owns four per cent of IAA’s outstanding shares, said in a letter sent to IAA’s board Monday (Nov. 14) the company could likely fetch a better price with more time and effort.

“We view IAA’s proposed sale to Ritchie Bros. as a poorly structured sweetheart deal that puts leadership’s interests ahead of shareholders’ best interests. If the current structure and terms remain intact, we intend to do everything in our power to oppose the transaction,” the Cleveland-based wealth management firm stated.

Ancora praised Ritchie Bros. CEO Ann Fandozzi in its letter to the board, but said IAA has been poorly managed by its own leadership team. Back in March it called on the board to replace IAA CEO John Kett, who Ancora said will be rewarded with a US$12-million change-of-control payment and a seat on the Ritchie Bros. board for overseeing an “objectively poor performance” and “a series of destructive capital allocation decisions.”

Those capital allocation decisions include international expansion plans undertaken last year through the US$310-million acquisition of U.K.-based Synetiq Ltd.

Representatives from IAA and Ritchie Bros. did not immediately respond to emails and phone calls from BIV.

Like IAA, Synetiq also specializes in salvaging and auctioning services in the commercial auto sector. Ritchie Bros. is best known for auctioning off heavy equipment and trucks.

Ancora also raised concerns in its letter to the board about whether IAA has explored other potential suitors for a sale that would have provide more value.

This investor push-back isn’t the first time Ritchie Bros. has been rebuffed over an acquisition deal this year.

CEO Fandozzi vowed last spring to continue hunting for companies to buy after British regulators put the kybosh on a £775 million ($1.2 billion) deal to acquire Euro Auctions UK Ltd.

The U.K.’s Competition and Markets Authority (CMA) was wary enough about the deal that it referred it to a second phase of review. 

The CMA said in a March 4 decision the acquisition would result in a “substantial lessening of competition” within the U.K., noting that Euro Auctions and Ritchie Bros. are the country’s two largest suppliers of auction services for heavy machinery and would face “no other significant competitors” following the acquisition.

Ritchie Bros. followed up and announced it did not believe there was any realistic prospect for the CMA to approve the sale.

Ritchie Bros. embarked on a major acquisition spree two years ago.

Its first target was U.S. data intelligence firm Rouse Services LLC, which it bought for US$275 million ($351 million at the time) in October 2020 before ponying up US$175 million ($224 million at time) for Connecticut-based SmartEquip Inc., which specializes in helping companies acquire equipment parts for large fleets and managing equipment services.