Acquisition Good News for Ritchie Bros.
After consolidating with one of its largest rivals, this wide-moat industrial and agricultural equipment auctioneer will improve its competitive advantage.
Following the IronPlanet acquisition announcement, we are increasing Ritchie Bros.' (RBA) fair value estimate to $31 from $29. Our Canadian fair value estimate only increases to CAD 41 from CAD 40, as recent exchange rate fluctuations reduce the value of the acquisition upon currency translation. Ritchie Bros. is acquiring the second largest online marketplace of used heavy equipment for $759 million in largely cash consideration, reflecting a 13 times adjusted EV to EBITDA multiple of 2017 earnings, or what we estimate to be an unadjusted 24 times EBITDA multiple. Having recently produced $956 million of gross auction proceeds, IronPlanet had aggressively pursued acquisitions to build scale and challenge Ritchie Bros.’ network effect. After consolidating with one of its largest rivals, we believe Ritchie Bros. will improve its competitive advantage, and we reiterate the company’s wide moat rating.
Founded in 1999, IronPlanet has been a sizable online marketplace for industrial equipment; however, organic growth was unremarkable. This appears to have changed following the company’s early 2015 acquisition of Cat Auction Services. Being owned by Caterpillar, Volvo, and several dealers, Cat Auction Services gave Caterpillar and its dealers the opportunity to swiftly dispose of the equipment while managing sales in a way that wasn’t disruptive to prices on the typical dealer’s lot. In the past, Ritchie Bros. had done a poor job gaining business from dealers. Following this transaction, Ritchie Bros. will have a five-year agreement as the preferred auction partner for Caterpillar and its dealers. For Ritchie Bros., this represents a relatively underutilized customer base, and it could set the precedent for other global auction partnerships with other equipment manufacturers and their dealer networks.
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Kwame Webb does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.