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27 June 2019

Rotala Plc

("Rotala" or "the Company" or "the Group")

Acquisition in Manchester

Pursuant to the terms of an asset purchase agreement ("APA"), Rotala is pleased to announce that it has agreed to acquire from First Manchester Limited ("First"), a subsidiary of FirstGroup plc, its Bolton depot and the majority of the First business located at that depot (the "Acquisition"). The total consideration for the Acquisition is £5.3 million, payable in cash on completion of the APA, which shall be satisfied from the Company's existing bank facilities.

Transaction highlights:

· Acquisition of Bolton depot and associated business, capable of operating up to 200 vehicles and serving 18 commercial bus routes

· Acquisition will make Rotala the second largest player in the Manchester bus market, one of the largest bus markets in the country

· Bolton depot will become the headquarters of the Rotala Group in the North West

· Rotala to lease 125 vehicles from First initially to service the new routes, with vehicles being replaced progressively by the Group in the next two years, leading to lower maintenance costs and fuel efficiencies

· Acquisition to be financed in cash from existing debt facilities

· Capital expenditure on bus replacement and re-equipment can be financed using the Group's existing panel of providers of hire purchase finance facilities

· Acquisition expected to be earnings enhancing in the first full year following completion and will significantly increase the scale of the business

· Completion of the Acquisition is expected to occur in August 2019 following receipt of necessary regulatory permissions

John Gunn, Chairman of Rotala, commented:

"This acquisition represents an exciting opportunity to expand significantly Rotala's presence in the Greater Manchester bus market. The deal is an indicator of how the UK bus landscape is beginning to change. We can expect more divestment by the big bus groups in future years. Rotala aims to be a major player in these market developments in years to come."

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About the business

Rotala provides a range of transport solutions, ranging from local bus services under contract to local authorities, through to commercial bus routes. Rotala has operations at Heathrow airport, in the West Midlands and the North West.

The Acquisition

The business to be acquired from First by Rotala comprises 18 commercial bus routes operating in the Bolton and Bury areas and into the centre of Manchester. The Acquisition includes the depot at Weston Street, Bolton, the plant and machinery at that site and the goodwill of the business. The Bolton depot covers an area of 6.7 acres and consists largely of a combination of freehold and long leasehold interests. The depot is a purpose-built bus depot, constructed about 15 years ago, capable of operating up to 200 vehicles. Approximately 500 staff will also transfer to Rotala with the business.

The Directors believe that the Acquisition will enable Rotala to strengthen significantly its operations in Greater Manchester. After London, Manchester represents one of the largest bus markets in the country, on a par with the West Midlands where Rotala already has a significant presence. The Acquisition will enable Rotala to create a business which will have a substantial share of the bus market in the Greater Manchester area and which will become the largest division in the Rotala Group. The Group already has two smaller depots in Greater Manchester, in Eccles and Atherton, operating approximately 90 vehicles. The Bolton depot will become the headquarters of the Rotala Group in the North West and the existing operations of the Group in the region will be re-organised in order to make full use of the facilities and capacity of the Bolton depot. This re-organisation will enable Rotala to benefit from synergies that the Directors have identified between the acquired Bolton business and its existing operations in Eccles and Atherton, and enable its expanded services in the Greater Manchester area to operate in the most efficient manner possible.

The Acquisition is expected to be earnings accretive in the first full year following completion and the Directors believe that the Company will benefit from material additional sales, EBITDA and profit before tax contributions.

For the 12 months ended 31 March 2019 it is estimated that the turnover, EBITDA* and profit before tax* attributable to the Acquisition were approximately £24.7m, £2.3m, and £0.3m respectively. The fair value of the assets to be acquired under the APA was a total of £4.3m, as at 31 March 2019.

The Directors believe that the Acquisition provides an exciting opportunity to achieve a significantly larger presence in this key bus market and to improve further the financial performance of the new combined Manchester business in the medium term, once the integration plans have been implemented.

Under the terms of a separate vehicle leasing agreement, Rotala has agreed with First to lease from it 125 vehicles which are used at the present time to service the 18 commercial bus routes which form the business to be acquired. These vehicles will be replaced progressively by the Group with more modern vehicles by 30 June 2021 and the leased vehicles will be returned to First by that date. The Directors estimate that the capital expenditure to be incurred in the re-equipment of this business will total approximately £26m, which may be financed using the Group's existing panel of providers of hire purchase finance facilities.

Completion of the APA is expected to occur in August 2019, following receipt by Rotala of the necessary regulatory permissions from the relevant Traffic Commissioner, among other conditions, and, in any event, by no later than 17 November 2019. 

*EBITDA and profit before tax figures shown before exceptional items and group recharges.