What happened
Shares of Ritchie Bros. Auctioneers (NYSE: RBA) were falling today after the company announced a $7.3 billion acquisition of IAA (NYSE: IAA), saying it would form a leading global marketplace for heavy equipment and vehicles. Ritchie Bros. also reported third-quarter revenue below analyst estimates.
As of 1:54 p.m. EST, the stock was down 18.2% on the news as the market seemed to dislike the acquisition.
So what
The $7.3 billion enterprise value Ritichie Bros. is paying for IAA is actually higher than Ritchie Bros.' own market cap at $5.5 billion; the $46.88 purchase price represents a 19% premium to where IAA closed on Friday.
Ritchie Bros. provides auctions for heavy equipment used for construction, drilling, and mining, while IAA specializes in selling damaged vehicles.
Notably, IAA stock was actually down today, a rare move for a company that is the target of an acquisition, and a sign that investors don't believe that the deal, which is still pending shareholder approval from both companies, will go through.
In a statement, CEO Ann Fandozzi said:
IAA accelerates our journey to become the trusted global marketplace for insights, services, and transaction solutions. Their highly complementary business in an adjacent vertical will allow us to unlock additional growth. Through our trusted brands, similar operating model, and complementary services, we expect to drive efficiencies and create a more resilient business.
Separately, the company reported Q3 earnings with revenue increasing 25% to $411.5 million, though that missed expectations at $485.9 million by a wide margin. https://investor.ritchiebros.com/news/news-details/2022/Ritchie-Bros.-reports-third-quarter-2022-results/default.aspx
Adjusted earnings per share rose 18% to $0.53, topping estimates at $0.49.
Now what
By bidding the stock down nearly 20%, investors seem to be expressing clear disapproval of the deal as some on social media sites like Twitter have questioned the synergies between the two companies, and RBA could be overpaying for IAA heading into a downturn.
Given the fact that IAA stock hasn't responded to the news, and RBA shares are down double digits, the deal may not even go through.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool recommends Ritchie Bros. Auctioneers and Ritchie Bros. Auctioneers Incorporated. The Motley Fool has a disclosure policy.
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