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Canada’s Ritchie Bros. to buy salvage vehicle platform IAA in $7.3 billion deal

Canadian equipment marketplace Ritchie Bros Auctioneers Inc. said on Monday it would buy U.S.-based IAA Inc.in a deal valued at about $7.3 billion to diversify into the salvage vehicle market.

The cash-and-stock deal, which includes debt, will allow Ritchie to tap into a growing market for damaged cars, trucks and motorcycles along with parts.

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

IAA spun off from auto auction giant KAR Auction Services Inc. in June 2019.

Both the companies have benefited from rising demand for used equipment. The global used equipment market is highly fragmented with total annual used equipment 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.

Shares of IAA, which beat third-quarter revenue expectations on Monday, were down 2.2 percent at $38.39, well below the purchase price of $46.88 per share, while U.S.-listed shares of Ritchie were down 20.1 percent at $49.8.

“(IAA) 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.

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

The purchase price of $46.88 per IAA share represents a premium of about 19 percent to IAA’s stock close on Nov. 4. The equity value of the transaction is $6.27 billion.

Ritchie stockholders will own about 59 percent of the combined company once the deal closes in the first half of 2023. The company’s CEO, Ann Fandozzi, will head the combination.

The cash portion of the deal, which will expand Ritchie’s presence in the United States, is expected to be financed through a mix of cash on hand and new debt. The company has secured financing commitments from Goldman Sachs, Bank of America and Royal Bank of Canada.

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