Spotlight on RB Global: A Transformative Journey

A Legacy of Excellence?

RB Global, a North American leader, operates in two dynamic sectors: used construction and transportation equipment auctions, and the auto salvage industry. Since its founding in 1958, RB Global has built a reputation as top-tier auction house. However, over the last 15 years, the company has expanded beyond auctions to become a full-service, multi-channel marketplace where customers can seamlessly buy, sell, and manage used equipment.??

This strategic transformation has allowed RB Global to offer end-to-end services – from financing and maintenance to transportation – adding value at every stage of the transaction. The results speak for themselves: strong free cash flow and consistent growth in earnings per share.?

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Post-Covid Era: Adapting to New Market Realities?

The Covid-19 pandemic in 2021 and 2022 presented unique challenges for RB Global. Supply chain disruptions made it difficult to access new equipment, forcing many market participants to hold on to their older equipment for longer periods. While this drove up prices for used goods, the overall flow of equipment decreased due to the tight supply environment. However, as supply constraints have eased, RB Global has seen an increase in used equipment flowing through its channels – a positive development, as more equipment means more opportunities to attach services, a key driver of profitability.??

Further underscoring the company’s strength, RB Global was appointed the lead auctioneer for the liquidation of assets from Yellow Corp’s bankruptcy, a major U.S. trucking company with over 12,000 trucks and 42,000 trailers on the auction block.?

Today, despite macroeconomic headwinds that have affected corporate investment decisions, RB Global’s dominance in the used equipment market remains a vital asset as companies seek cost-effective alternatives in uncertain times.??

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Strategic Acquisition of IAA?

In November of 2022, RB Global took another leap by acquiring IAA, the second largest player in the auto-salvage industry. This acquisition opened doors to a highly specialized market characterized by high barriers to entry and strong ties to the insurance industry. The auto-salvage sector is dominated by two key players, controlling over 90% of the market, and success in this space requires both a national footprint of yards and close relationships with insurance companies.??

The close relationship between salvage operators and insurers is critical. When a vehicle is totaled, insurance companies must compensate the policyholder and take possession of the damaged vehicle. Managing this process efficiently can greatly impact working capital and returns, making it unlikely that insurers would entrust this task to a newcomer without proven expertise.??

Despite facing challenges and losing market share to its competitor, Copart, IAA’s integration with RB Global has been promising. Synergies in real estate, customers, and technological innovation have started to bear fruit. Market share is stabilizing, key performance indicators are improving, and new customer wins are boosting optimism.??

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A Pioneer in Circular Economy and ESG Practices?

RB Global stands out its minimal exposure to controversies and its comprehensive assessment of non-financial material issues, which are well-articulated in its ESG report. The company’s business model plays a vital role in the circular economy by offering services for repairing and reintroducing used equipment into the market. RB Global also excels in workforce management and site safety.??

Its diversity and gender inclusion policies are exemplary, with several women holding senior executive roles and board positions.??

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Looking Ahead?

RB Global continues to be a standout in our fund due to its leadership position, robust and growing cash flow, and its potential for above-market growth, particularly in the auto salvage sector. Furthermore, the current valuations for both IAA and RB Global are significantly below historical averages, making it a top pick in our fund.??

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Key Areas to Watch?

Key element to watch going forward include RB Global’s ability to navigate catastrophic events like hurricanes and tornados in the U.S., as these have impacted market share in the past. Additionally, how the company enhances its service offerings within the auction segment will be crucial in driving further growth.??

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Stay tuned for next month’s spotlight as we continue to showcase the companies driving success in the Desjardins Canadian Equity Focused Fund.?

The information included in this article is presented for illustrative purposes only. The information presented should not be construed as investment advice, recommendations to buy or sell securities, or recommendations for specific investment strategies.?