Pacific Trader: Did Ritchie Bros. Auctioneers bid too much for its latest (and greatest) acquisition?

Thanks to a recent takeover, the Burnaby company is poised to become an even bigger player in heavy-equipment resale.

Credit: Ritchie Bros. Auctioneers

A Ritchie Bros. auction in Orlando, Florida

The $1.3-billion takeover of Euro Auctions enlarges the Burnaby-based company’s dominance in the heavy-equipment resale niche

The stock: Founded in Kelowna in 1958, Ritchie Bros. Auctioneers (TSX:RBA) used to be a counter-cyclical stock. The now Burnaby-based auction house for heavy equipment recorded some of its best quarters whenever the economy went into recession, as ailing resources and construction firms tried to offload their idled machinery. But as the company has grown and extended its reach beyond North America and to different kinds of sellers (including original equipment manufacturers), its fortunes have become harder to predict.

The drivers: Late Sunday, CEO Ann Fandozzi announced that Ritchie Bros. is buying Ireland-based Euro Auctions for £775 million (about $1.3 billion) in cash. The purchase gives Ritchie exposure to markets in the U.K., Germany, Spain, Australia and the United Arab Emirates, along with, it says, a better pipeline for sourcing inventory deals abroad.

Notoriously pinched supply chains in the wake of the COVID-19 pandemic have seen industrial companies hold on to their old equipment longer than planned while they await new models. Ritchie Bros. managed to boost its net income 15 percent to US$60.7 million or US55 cents a share in the second quarter, but that was still below analyst estimates in this recovery year. The stock hit an all-time high of $101.93 last fall and has since drifted downward. The Euro Auctions takeover saw it rally to around $74.50 a share.

Word on the street: Analysts like the idea of the Euro Auctions bid but don’t regard the final hammer price as a bargain. “We view the deal as marginally accretive to our forecasts,” wrote National Bank‘s Maxim Sytchev, who raised his target modestly, to US$65. “The tightness of the used equipment market is very much still with us,” he noted. 

Coming and going: Vancouver-based EverGen Infrastructure Corp. (TSXV:EVGN) completed an initial public offering on the TSX Venture Exchange on August 4. EverGen, which acquired the decade-old Fraser Valley Biogas plant in Abbotsford last year, is the latest in a handful of startups attempting to capture renewable natural gas from manure and other biodegradable waste—and with it, the market’s interest in renewable energy—a list that includes Vancouver-based Green Impact Partners (TSXV:GIP), profiled here last month, and Greenlane Renewables (TSX:GRN) of Burnaby.