RB Global: We See a Recent Market Share Loss Challenging IAA, but Heavy Equipment Remains Solid

Equity Analyst

Dawit Woldemariam

RB Global provides auction and marketplace services for used heavy equipment. The company’s strong auction liquidity attracts both buyers and sellers to its network. We believe RB Global will continue to be the top player in the industrial asset disposition market. The network effects present in its business have consistently delivered higher average selling prices for consignors (or sellers) and provided buyers a wide range of equipment to choose from. For both parties, RB Global drives significant amount of value, which has allowed it to monetize its network effects and develop a strong competitive positioning. 

RB Global’s strategy going forward is to move its business from being primarily transaction based to more solutions based. It has developed digital solutions that range from inventory management solutions for buyers to market intelligence tools for sellers. The company is also pushing to provide more services to customers, such as financing, parts and services, and appraisal and inspection services. While these services have the potential to drive higher profitability, we think it will be challenging to drive adoption rates higher in the near term. Customers will need to be convinced of the value that add-on services can bring to their buying or selling experience. Furthermore, the company is extending into the auto salvage market with its acquisition of IAA. The new vertical has attractive tailwinds, but IAA has struggled in recent years, losing market share to its largest competitor, Copart. 

The company has exposure to attractive tailwinds in the near term. Construction equipment makes up around 20% of the equipment sold through RB Global. In economic upturns, equipment owners often opt to sell their older equipment to buy new. RB Global also benefits when markets are pressured, and asset owners look to increase liquidity through asset disposals (such as bankruptcies). We believe used-equipment supply will continue to loosen in the near term and lead to greater auction liquidity for RB Global.

Business Strategy & Outlook

We assign RB Global a narrow economic moat rating, primarily based on the network effects in its industrial equipment auctions. In our view, network effects occur when the value of a good or service increases for both new and existing users as more customers use that good or service. We believe the value that RB Global provides users in its network is auction liquidity. We define auction liquidity as the number of users interacting with the network and the level of user activity (engagement). For decades, the company has been adept at attracting both buyers and sellers to its auctions and has steadily grown user activity (bidder registrations, lots sold, bids per lot). Together, these factors have led to RB Global becoming the market leader in auction liquidity. By all measures, the value of the company’s services has increased as more customers have either bought or sold equipment on its auctions. 

RB Global’s two-sided network effects have created a virtuous cycle, making it a prime example of the "flywheel" effect. On the supply side, there are two main benefits for sellers who elect to sell their assets on RB Global's auctions. First, the company’s strong auction liquidity helps sellers realize higher selling prices. The higher volume of buyers on RB Global’s network often leads to more bids per lot than on smaller auctions. As bids per lot increase, equipment prices typically march higher, which ultimately leads to sellers netting higher proceeds. Second, RB Global extends sellers’ reach beyond their home market. This gives sellers access to new markets globally, increasing their ability to reach more buyers than they could on regional auctions. 

On the demand side, RB Global provides buyers access to a wide range of equipment, in addition to high equipment availability. Equipment verticals include construction, agricultural, oilfield, and transportation assets. The high volume of sellers within RB Global’s network provides ample opportunity for buyers to bid on equipment, reducing the risk of not winning a bid. These factors illustrate not only the value that both buyers and sellers realize by participating in RB Global’s network, but it also shows that as more buyers and sellers enter the network, the value of RB Global’s services increase for both existing and new users. We believe the high volume of buyers on RB Global’s network draws more sellers to the marketplace. As more sellers join the network, that in turn attracts additional buyers to sign up, creating a “flywheel” effect.

RB Global is highly effective at monetizing the value it provides to both buyers and sellers. In fact, the company’s monetization rates have trended higher over time, showing users are increasingly finding value on RB Global’s auctions. A key monetization rate for RB Global is its core auction rate (service revenue as a percent of gross transaction value), which stood at 20% in 2023, up from 11% in 2010. The components of the core auction rate are the commissions and fees earned on equipment transactions. The majority of commissions are negotiated at a fixed rate of the gross selling price. We believe the value provided on RB Global’s network allows it to negotiate higher commission rates than competitors with weaker auction liquidity. The balance of commissions is categorized as underwritten contracts, where RB Global guarantees sellers a minimum level of return. With regards to fees, the company charges sellers for listing assets on its marketplace. For buyers, RB Global charges a fee when transactions are completed. 

RB Global controls about 20% of the $30 billion used heavy equipment auction market, with strong opportunities to gain more share. The auction market is highly fragmented and offers plenty of opportunities for RB Global to grow both organically and inorganically. As the largest player, the company provides its customers stronger auction liquidity than smaller players. We believe competitors will struggle to win market share as sellers will opt to sell their assets through RB Global, where they’ll likely get the better selling prices. In our view, this will allow RB Global to not only maintain its strong market share position, but also expand it. M&A has also been a lever that has driven market share growth. In 2017, RB Global acquired IronPlanet, an online marketplace. This move expanded its reach into online auctions, which gives customers an option of where they’d like to buy or sell equipment. We believe this eases the concerns around online marketplaces competing away returns from RB Global live auction business. 

We do not think RB Global faces any substantial threats from ESG risks. As a service provider, it does not have direct exposure to the product safety issues, carbon emissions, and environmental regulation that original equipment manufacturers face. The company does, however, have relatively medium exposure to product governance issues, based on research from Morningstar Sustainalytics, a division that provides sustainability research. It’s important for processes to be in place to prevent service quality from deteriorating and negatively affecting customers. We believe RB Global has the systems in place to not only deal with service issues as they arise, but also the ability to drive higher service quality through its sales team reorganization. Before, the company operated under a territory manager model, where one individual had multiple responsibilities. Today, management is actively transitioning the selling model into more isolated roles. These roles include an account manager, a business development manager, and an inside territory manager. We think this will help focus the sales team and drive greater efficiencies in the business, and ultimately better service quality for customers. Therefore, we do not view the product governance risk as material enough to include in our valuation.

Narrow

Economic Moat

Ritchie Bros. Auctioneers

Ritchie Bros. Auctioneers, Inc. is an industrial auctioneer, which engages in the sale of equipment to on-site and online bidders. It operates through the following segments: Auctions and Marketplaces, Ritchie Bros. Financial Services and Mascus. The Auctions and Marketplaces segment consists of live on site auctions, online auctions and marketplaces, and brokerage service. The Ritchie Bros. Financial Services segment refers to the financial brokerage service. The Mascus segment includes online listing service. The company was founded by David Edward Ritchie in 1958 and is headquartered in Burnaby, Canada.

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RB Global, Inc. engages in the provision of value-added insights, services, and transaction solutions for buyers and sellers of commercial assets and vehicles worldwide. Its brands include Ritchie Bros., IAA, Rouse Services, SmartEquip, Xcira, and Veritread. The company was founded by David Edward Ritchie in 1958 and is headquartered in Westchester, IL.

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