Ritchie Bros. makes play for consumer auto market with US$7.3B deal for IAA

Burnaby-based auction giant best known for selling heavy-duty equipment and trucks

A Ritchie Bros. auction in Orlando, Florida, in 2016 | submitted

Burnaby’s Ritchie Bros. Auctioneers Inc. (TSX:RBA) (NYSE:RBA) is joining the every-growing cohort of B.C. tech companies making inroads on the consumer vehicle market.

The auction giant announced Monday it was acquiring U.S.-based auto retailer IAA Inc. (NYSE: IAA) in a deal worth US$7.3 billion.

While Ritchie Bros. is best known for auctioning off heavy equipment and trucks, IAA mainly focuses on auctioning damaged consumer vehicles through its digital platform.

The deal is expected to close in the first half of 2023 and is still subject to shareholder and regulatory approval.

Ritchie Bros. CEO Ann 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.

“It’s important to understand that there’s plenty of things to buy out there,” Fandozzi told investors after the deal fell through. “We’re looking for a very good business, but we’re looking for something that will enhance our capabilities geographically.”

It appears the company has found that by expanding into the consumer vehicle market, which has become increasingly enticing for the B.C. technology sector.

At least three local tech companies have launched online platforms for auto sales since the start of pandemic.

While it might seem like an increasingly crowded market, Google Canada data shows online car sales still only account for six per cent of all new sales.

“It's a fairly new frontier, which is why I think you see all these new players entering the market,” Mike Wood, CEO of online auto sales platform TrafficDriven Technologies Inc. (dba Mintlist), told BIV in July.

“We're all doing it from a different vantage point and doing it a little bit differently. And I firmly believe there is room for a JJ Bean [Inc.] and a Starbucks [Corp. (Nasdaq:SBUX)] being on opposite corners.”

His company, along with Vancouver’s Canada Drives Ltd. and Autozen Technology Ltd., have all launched marketplaces for consumer automobiles in the past two years.

Meanwhile, this acquisition deal for Ritchie Bros. would see the West Coast company take on US$1 billion of IAA’s debt, while IAA shareholders will receive US$10 in cash and 0.5804 of a Ritchie Bros. common share for each share of IAA they own.

The purchase price, valued at US$46.88 per share, represents a premium of about 19 per cent to IAA's closing share price on Friday. 

Ritchie Bros. shareholders will own about 59 per cent of the combined company and IAA shareholders will own about 41 per cent.  The deal will see IAA CEO and president John Kett and three other current members of the IAA board join the Ritchie Bros. board once the transaction is complete, while Ritchie Bros. chairman Erik Olsson will remain chairman and Fandozzi will lead the combined company.

IAA has nearly 4,500 employees and more than 210 facilities in the U.S., Canada and the United Kingdom. 

"IAA accelerates our journey to become the trusted global marketplace for insights, services, and transaction solutions," Fandozzi said in a statement. "Through our trusted brands, similar operating model, and complementary services, we expect to drive efficiencies and create a more resilient business."

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.

—With files from the Canadian Press