Ritchie Bros. Auctioneers and IAA entered into a definitive agreement under which Ritchie Bros. will acquire IAA in a stock and cash transaction valued at approximately $7.3 billion, including the assumption of $1 billion of net debt. The transaction has the unanimous support of both company’s boards of directors.

IAA is a digital marketplace connecting vehicle buyers and sellers that delivers annual gross transaction value of $8.6 billion. The transaction represents Ritchie Bros.’ entry into the vehicle sector and will diversify Ritchie Bros.’ customer base by providing the company with a presence in the vehicle remarketing vertical. Combining Ritchie Bros. and IAA’s product offerings immediately creates a marketplace for commercial assets and vehicles with pro forma gross transaction value of approximately $14.5 billion for the last 12 months ended Sept. 30 and pro forma revenue and adjusted EBITDA of approximately $3.8 billion and approximately $1 billion, respectively, excluding the impact of synergies.

“IAA accelerates our journey to become the trusted global marketplace for insights, services and transaction solutions,” Ann Fandozzi, CEO of Ritchie Bros., said. “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.

“This announcement is a testament to the passion and dedication of the Ritchie Bros. and IAA teams. We expect this transaction to create new and exciting growth and development opportunities for employees of both Ritchie Bros. and IAA as we scale our combined business. As we do so, we will continue to foster our aligned culture and shared values grounded in supporting and empowering our team to create a best-in-class customer experience.”

“Together, IAA and Ritchie Bros. will have expanded global operations, accelerating international buyer development and enhancing ancillary services such as transportation and finance,” John Kett, CEO and president of IAA, said. “The transaction will also provide compelling value to stockholders through the immediate cash component and the opportunity to participate in the substantial growth potential of our combined company with significant resources. I believe that very appealing new opportunities are ahead for IAA employees and new capabilities for customers as we enter this exciting new chapter with Ritchie Bros.”

Under the terms of the merger agreement, IAA stockholders will receive $10 in cash and 0.5804 shares of Ritchie Bros. common stock for each share of IAA common stock they own. The purchase price of $46.88 per share represents a premium of approximately 19% to the closing share price of IAA common stock on Nov. 4 and 23% to the 10-day volume-weighted average price using Ritchie Bros.’ 10-day volume-weighted average price on the New York Stock Exchange of $63.55. The total purchase price also reflects a transaction multiple of 13.6x IAA’s last 12-month adjusted EBITDA as of Oct. 2. Upon completion of the transaction, Ritchie Bros. stockholders will own approximately 59% of the combined company and IAA stockholders will own approximately 41%.

The transaction is expected to close in the first half of 2023, subject to approval by Ritchie Bros.’ stockholders of the issuance of Ritchie Bros. stock in connection with the transaction, approval by IAA’s stockholders of the transaction, receipt of regulatory approvals and other customary closing conditions.

Ritchie Bros. intends to fund the cash consideration of the transaction through a combination of cash on hand and new debt. The company has bridge financing commitments in place from Goldman Sachs, Bank of America and Royal Bank of Canada. At closing of the transaction, the combined company is expected to have a pro forma leverage ratio of approximately 3x net debt to adjusted EBITDA. Additionally, Ritchie Bros. will prioritize de-leveraging following the close of the transaction. Ritchie Bros. also intends to maintain its current quarterly dividend of $0.27 per share and will consider future increases as the company de-levers its balance sheet.

By combining IAA’s existing footprint of more than 210 facilities across the United States, Canada and Europe with Ritchie Bros.’ existing footprint of more than 40 owned and 24 leased facilities globally, the combined company will have new opportunities to advance its yard strategy more efficiently in regions across the United States and internationally.

The companies expect to achieve $100 million to $120 million in annual run-rate cost synergies by the end of 2025, driven primarily through consolidating back office, finance, technology, general, administrative and operations functions. The transaction is expected to be accretive to Ritchie Bros.’ adjusted earnings per share by low single digits in the first full year following the transaction close and accretive to its adjusted earnings per share by the mid-teens after that.

Fandozzi will continue to serve as CEO of the combined company, while Ritchie Bros.’ board of directors will expand to add Kett and three other current members of IAA’s board following the close of the transaction. Erik Olsson, chairman of the Ritchie Bros. board, will serve as chairman of the board of the combined company.

Ritchie Bros. will continue to be legally incorporated in Canada and will retain its offices and employee base in Burnaby, BC, while IAA’s Chicago offices will serve as the official headquarters of the combined company. As of the transaction closing, approximately two thirds of the combined company’s workforce will be in the United States.

Following the transaction close, Ritchie Bros. will continue to trade under the symbol RBA on both the NYSE and TSX.

Goldman Sachs served as lead financial advisor and Guggenheim Securities served as co-lead financial advisor to Ritchie Bros. on this transaction. Evercore and RBC Capital Markets also served as financial advisors to Ritchie Bros. J.P. Morgan Securities served as financial advisor to IAA. Goodwin Procter, McCarthy Tétrault and Skadden, Arps, Slate, Meagher & Flom served as legal advisors to Ritchie Bros. and Cooley and Blake, Cassels & Graydon served as legal advisors to IAA.