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Passenger transport M&A: spotlight on taxi and private hire companies

Philip Bird

Our latest review of merger and acquisition (M&A) activity in the passenger transport sector focuses on the taxi and private hire vehicle (PHV) market. This long-standing sector has recently been feeling the winds of change, with clear impact on transactional activity.

The private hire market in the UK is notable for the relative lack of large operators, being characterised by a large number of small firms. There are 14,600 licensed PHV firms in England and 205,500 private hire vehicles – an average of 14 vehicles per firm.

The Uber effect
Uber’s impact on the market following its London launch in July 2012 is obvious. The number of licensed PHV drivers in London increased by 76% between March 2013 and March 2017 (to total 117,700). Uber has not only attracted new drivers into the market, but also poached drivers from traditional PHV firms. As a result, more than one in three licensed PHV drivers in London are associated with Uber. It’s not surprising, therefore, that the number of licensed PHV firms in London has fallen by 24% (to 2,400) in the four years from 2013 to 2017, according to the Department for Transport (DfT).

As Uber’s reach has spread across the UK, so has the challenge to PHV firms in London and elsewhere. In cities across the UK, minicab firms now have to compete with Uber for both business and drivers. To do so, PHV firms need to invest in their businesses, particularly in technology (e.g. developing their own apps), marketing and their networks. Smaller businesses can struggle to raise the necessary funds, however, leading them to consider joining an aggregator network or scaling up through M&A.

M&A data for the six years between 1 January 2012 and 31 December 2017 suggests Uber’s entrance has stimulated increased M&A activity. During this period there were 29 reported transactions in the sector, including taxi, minicab, limousine and executive car hire firms. Financial details are available for only two of these deals, but the data still enables analysis of the type of transactions involved.

Well over half of the reported deals (19 out of the 29) took place in 2015 and 2016 – the latter being the real boom year.

M&A 2012-2017
Year No. reported deals
2012 3
2013 2
2014 2
2015 8
2016 10
2017 4
Total 29

Who’s buying?
In the vast majority of cases (27 of 29) acquirers were trade buyers – and all from within the passenger transport sector. Private equity firms were active in the other two transactions, which involved Transport Innovation Limited (Vine Street Capital) and Addison Lee (The Carlyle Group) We note that Addison Lee has since made three acquisitions themselves. All acquirers were domestic entities, with the exception of one French backed entity, Transdev plc.

Two public companies completed three acquisitions between them – Transdev plc (two) and Rotala plc (one). Both these plcs operate in numerous sub-sectors across the passenger transport sector. Rotala also featured, for example, in our previous analysis of M&A in the bus and coach sector.
Apart from Transdev, three other businesses also made multiple acquisitions: Veezu (five), Addison Lee (three) and Sheffield City Taxis (two).

Regional activity
According to DfT statistics, 40% of England’s licensed drivers are based in Greater London. It’s no surprise therefore that 38% of the acquisitions (11 of 29) involved companies based in the Greater London area.

Companies involved in the other 18 deals were spread around the UK, with no region (Greater London aside) dominating activity. The number of transactions in each region between 2012 and 2017 is again proportional to the number of licensed drivers as of March 2017. What’s clear is that trade buyers stay close to home: 26 of the 27 trade buyers acquired businesses located in the same city or region.

What next?
Looking ahead, it will be interesting to see whether the number of transactions across all regions ticks up again, or whether Uber’s impact has now been absorbed by the sector. What we can see is that, if owners are looking for a sale, they are most likely to find a buyer already operating in the sector and in the same region as their own business.

M&A by region (2012-2017)
Region No. reported transactions in UK (2012-2017) Proportion of UK transactions in region Proportion of licensed drivers in region (March 2017)
North East 1 3.4% 4.0%
North West 4 13.8% 13.2%
Yorkshire and the Humber 4 13.8% 7.7%
East Midlands 2 6.9% 4.8%
West Midlands 2 6.9% 8.7%
East of England 1 3.4% 6.6%
London 11 37.9% 39.9%
South East 2 6.9% 10.3%
South West 1 3.4% 4.8%
Cardiff 1 3.4% n/a
Total 29