What: Shares of Ritchie Bros. Auctioneers (NYSE:RBA) jumped 16% during early Tuesday trading after the company announced an acquisition and strategic alliance, regaining much of the value that they shed after the slightly disappointing recent quarterly earnings.
So what: Without further ado, the big news driving the stock price higher was Ritchie Bros. entering an agreement to acquire 100% of IronPlanet, an online auction/marketplace company that offers Ritchie Bros. access to a complementary business line. The deal consists of a $758.5 million cash transaction at a 13 times multiple of 2017 estimated EBITDA. Ritchie Bros. expects the acquisition to be accretive to earnings within the first year and annual cost synergies of roughly $20 million are expected to be achieved by 2018.
Now what: It's a great move for Ritchie Bros. and its investors. With IronPlanet primarily focused on selling to larger corporate accounts, equipment manufacturers, dealers, and government entities, it complements Ritchie Bros.' business. It's also a move that highlights its focus on expanding online. Ritchie Bros. does both live on-site auctions as well as online events, but IronPlanet is an established online-only sales channel.
What this acquisition also brings is a strategic alliance with Caterpillar, which owns a minority position in IronPlanet.
"Ritchie Bros. is proud to enter into this historic alliance, which will strengthen our relationship with Caterpillar, its dealers and end users, as well as help expand our global reach and footprint," said Ritchie Bros. CEO Ravi Saligram. "Our marketing capabilities, unrivaled suite of technology and powerful multi-channel transactional platforms will add tremendous value and make us a trusted strategic partner to the Caterpillar family."
Ultimately, this is a move that enables Ritchie Bros. to offer its customers a better and more thorough purchasing experience, accelerates the company's top- and bottom-line growth, and strengthens relationships with OEMs and dealers -- all while improving on the company's digital and online capabilities.