15 Oct 2010 07:00
15th October 2010
Stagecoach Group plc ("Stagecoach" or the "Group") acquisition of bus business from East London Bus Group Limited
Key highlights
·; Acquisition of third largest bus operator in London with a market share of approximately 15%
·; Transaction enterprise value of £52.8m
·; Opportunity to create value through turnaround of under-performing business and back-office savings
·; Modestly accretive in the first full financial year
Commenting on the acquisition, Brian Souter, Chief Executive of Stagecoach, said,
"We operated a successful bus business in London for several years and are pleased to re-enter the London bus market at what we consider to be an attractive price. Whilst we do not underestimate the challenges we face in driving up the financial performance of the acquired business, we relish the opportunity to apply our expertise in managing UK bus businesses to create value from a turnaround situation."
Introduction
Stagecoach is pleased to confirm that its subsidiary, Stagecoach Bus Holdings Limited ("SBHL"), has completed the acquisition of the bus business formerly owned by East London Bus Group Limited (in administration). SBHL has acquired four companies that together operate the acquired business.
The cash paid in respect of the acquisition was £59.5m, inclusive of amounts to settle inter-company liabilities payable by the acquired business to its former parent company. The consideration payable was calculated on the basis that the acquired business had aggregate cash balances of approximately £6.7m at close of business on the day prior to completion, giving a transaction enterprise value of £52.8m.
Rationale for the acquisition
Following the disposal by SBHL of the East London bus business in 2006, the divested business experienced a decline in profitability but maintained a strong share of the London bus market. We believe that there is a compelling rationale for acquiring the business at the price paid. Building on recent steps to improve operational performance, we believe there is an opportunity to add value through a turnaround of the under-performing business and through synergies with Stagecoach. Through our previous ownership of the business, we are familiar with the regulated London tender environment and have a track-record of operating successfully and profitably in this market.
Information on the acquired business
The acquired business is the third largest bus operator in the London market, and has an estimated 15% share of that market. 99% of its revenue is from Transport for London. The business operates bus services under contract to Transport for London whereby it receives a fixed fee (subject to adjustment for certain inflation indices) for operating the services and takes the cost and capital risk.
The business operates from 10 depots and has a fleet of around 1,400 buses.
For the year ended 2 April 2010, the acquired business generated unaudited consolidated revenue of £253.5m and profit before exceptional items, interest and taxation of £9.0m, although that level of profit is not expected to be maintained for the year to March 2011. As at 2 April 2010 the unaudited, consolidated gross assets were £150.8m.
Financial effects
The cash paid in respect of the acquisition has been satisfied from the Group's existing surplus cash balances and existing undrawn, committed, bank facilities.
The transaction is expected to be modestly earnings accretive in the first full year of ownership.
Plans for the acquired business
We intend to operate the acquired business as a standalone business unit within the Group, whilst realising the synergies deliverable from integrating its back office activities with the rest of the Group.
We plan to finance the majority of new vehicles for the business with operating leases that match the related contracts with Transport for London. The operating lease model will increase the London business' costs. However, it will mean that the fleet strategy of our non-London UK Bus operations is less dictated by owned vehicles that are no longer required by the London business being forced upon the non-London business. This should in turn avoid any dilution to our successful strategy for our non-London UK Bus operations.
For further information, please contact:
Stagecoach Group plc www.stagecoachgroup.com
Martin Griffiths, Finance Director 01738 442111
Steven Stewart, Director of Corporate Communications 07764 774680
Smithfield Consultants 020 7360 4900
John Kiely & Will Swan