Ritchie Bros. Auctioneers (CA:RBA) had two pieces of news to report to begin the week. Investors did not like much of what they heard. Its stock was down nearly 18% in Monday trading.
Investors weren’t buying anything it was selling. As a result of Monday’s bloodbath, Ritchie Bros. stock is down 11% in 2022 and more than 21% over the past 52 weeks.
The company reported sales of $411.5 million, 25% higher than a year ago. Unfortunately, analysts were expecting $485.9 million, a reasonably large miss. However, it beat on the bottom line with adjusted earnings per share of $0.53, four cents better than the consensus estimate.
The other news was the announcement that it was buying IAA (US:IAA) for $7.3 billion, including the assumption of $1 billion in debt. IAA operates a digital marketplace for the buying and selling of salvage, damaged, and low-value cars and trucks in the U.S., United Kingdom, and elsewhere.
The cash-and-stock transaction sees Ritchie pay a 19% premium to IAA’s Nov. 4 closing price. Ritchie is settling the purchase with $10 in cash per IAA share, plus it will issue 0.5804 shares of its stock.
Once completed, Ritchie shareholders will own 59% of the combined company, while IAA shareholders will hold 41%.
“IAA accelerates our journey to become the trusted global marketplace for insights, services, and transaction solutions,” said Ann Fandozzi, CEO of Ritchie Bros. “Their highly complementary business in an adjacent vertical will allow us to unlock additional growth.”
The combined business will have pro forma annual gross transaction value (GTV) of $14.5 billion as of Sept. 30, annual revenue of $3.8 billion, and adjusted EBITDA of $$1.0 billion.
Ritchie Bros. believes that adding IAA’s more than 210 facilities in the U.S., Canada, and Europe, with its own 40 owned and 24 leased facilities, gives it more flexibility with its real estate.
In addition, the two businesses expect to find as much as $120 million in annual run-rate cost synergies through the consolidation of operations by the end of 2025.
Although the combined business will be incorporated in Canada, its official headquarters will be in Chicago, where IAA is based. It is expected to close in the first half of 2023.
While the markets didn’t like the news, Ritchie Bros. was upgraded by Barrington Research on Monday to Outperform from Market Perform. National Bank also upgraded RBA stock to Sector Perform while dropping its target price to US$55.
IAA was spun off from KAR Auction Services in June 2019. KAR shareholders received one new IAA share for every share held in the former parent. In the 40 months since IAA went public, its shares have traded as high as US$66.85 in January 2021. They’re down 43% since.
This article originally appeared on Fintel
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