Research Notes: RBA After IAA

Ritchie Bros. spent $7 billion acquiring IAA. But the acquisition raises plenty of questions for shareholders.

⚡ Highlights:

• RBA’s bid to acquire IAA in November met initial resistance — but in the end the deal was closed.

• But the post-merger RBA looks risky. The company levered up to make what looks like a financial rather than a strategic transaction.

• There isn’t quite enough to turn bearish. But a short RBA trade should at least go on the watchlist.

In November of last year, heavy equipment marketplace Ritchie Bros. Auctioneers RBA 0.00%↑ announced its plan to acquire auto salvage specialist IAA Inc. Seemingly everyone was unhappy. RBA stock plunged 18% on the news. That plunge became a problem for IAA, which had just accepted an acquisition offer that was nearly 80% in stock. IAA stock wound up falling 2% on the day, not the kind of trading usually seen for an acquisition target.

As we detailed on Twitter in February, major shareholders on both sides of the transaction came out against it. And yet, thanks perhaps in part to a shareholder bribe special cash dividend paid after the close, RBA got the deal across the finish line. Neither vote in fact was particularly close: 85% of RBA shareholders voted in favor, and IAA’s victory was nearly as comprehensive.

But the nature of the merger does make RBA a potential short target. The bid to gain