Auctioneer finds its place by chasing dislocations
Inventory from struggling oil and gas companies going up for bidding at Humble-area site of Ritchie Bros.
AS the auctioneer’s megaphone faded in the distance, Cody Baker and Matthew Boykin had wandered far out to the edge of a 130-acre gravel lot to check out a row of man-lifts, the crawlers with big arms that elevate workers to high places. They hoisted hoods in the hot sun, poked at wiring, peered underneath to check for oil leaks, trying to find a few worth taking back to Midland to put to work in the oil fields.
“We kind of feel like it’s a buyer’s market right now,” says Baker, who rents equipment to drillers. His business is down by about half from the crazy high a couple years ago, but it still exists, and he figures the downturn might have delivered some bargains. “People have all this equipment around that’s not working, and they have loans, so they have to sell it to pay it off.”
A handful of industries have thrived in the oil downturn — and auctioneering is one of them. When a sharp decline in the price of oil forces drillers to cap their wells and sell off assets to cover debts, auction houses are there to help.
This auction is run by Ritchie Bros., one of the big-
gest players in a hyperfragmented industry mostly populated by independent operators. The company, headquartered in Vancouver, B.C., now has 44 auction sites, including three in Texas. Last year, the company had its biggest year ever, pulling in $515.9 million in revenue from its auctions.
Part of that has to do with the wash of oil equipment on the market starting in early 2015. On the company’s first quarter 2016 earnings call, chief executive officer Ravi Seligram took pains to reassure investors that the record year wasn’t a “fluke” caused by the flood of inventory from struggling oil and gas companies.
“Our model is to go chase dislocations,” Seligram said. “Today, it may be oil and gas. Tomorrow, it may be agriculture. Day after, it may be transportation.” There’s a lot of dislocation going on worldwide, which has driven the company’s expansion into central America, Europe, Asia, Australia, and the Middle East.
An oil bust isn’t all good news for a big auctioneer, however. The company carefully monitors demand for different kinds of equipment, and is careful about taking on too much from the oil field that might not find new uses in other industries. Ritchie Bros. employees are constantly on the road talking to people with stuff to get rid of, and last year decided to pass on $50 million of oil field gear that they determined would have been hard to sell.
Good times preferred
Alan McVicker, who manages the Humble-area auction facility, said auctions don’t only profit from economic misfortune — they can just find an upside in any stage of an economic cycle. “We like it better when people are working, and things are good, and they’re constantly turning their equipment,” he says. “Our business is a bit different, because in good times we have quality, and in hard times we have quantity, so our business stays pretty even.”
Ritchie Bros. has come a long way from the days when auctioneers led crowds of prospective buyers from excavator to semi truck to forklift for rounds of bidding in the broiling heat. The Humble-area facility has air conditioning and comfortable seats from which men with sunbaked faces and dirty work boots drop tens of thousands of dollars on pieces of equipment that roll slowly past behind glass in front of them. For smaller items, they register bids on electronic kiosks, and watch on airline departure-style flat-screen TVs to see if they won.
Foreign buyers
Often, though, it’s not any member of the audience who walks away with the winning bid — it’s someone out there on the internet who’s following along, often from another state or another country. The Humble location is particularly popular for foreign buyers, since they can arrange for the equipment to be shipped from Houston’s international port. And for both in-person and online transactions, Ritchie Bros. has its own financial services arm that will lend money to finance an acquisition.
Rapid-fire patter
But one thing hasn’t changed: The rapid-fire auctioneer’s patter, aided by four men on risers at the front of the auditorium — Donnie, Shane, Logan, and Gene — who scan the crowd for finger twitches that might indicate a bid. The price jumps quickly, like wildfire, and then more slowly, as the uninterrupted stream of verbiage creates a sense of urgency in anyone teetering on the edge of a decision to commit.
“If you sit here for 15 minutes, you’ll start to understand it,” says Ian Malinski, a company spokesman. “All you have to listen for are the numbers. Everything else is filler.”