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Passenger transport M&A: five years in focus

Philip Bird

The passenger transport sector has seen a steady amount of merger and acquisition (M&A) activity in recent years. We think this is worthy of attention, so this is the first in a series of blogs looking at M&A activity among bus and coach, rail, ferry and private taxi companies.

Let’s start with the big picture. In the five years from 2012 to 2016, a total of 84 M&A transactions were announced in the passenger transport sector. As shown (see chart 1), 2012 and 2015 were peak years, but 2016 also saw considerable activity, with 18 transactions announced.

(Chart 1)

Not all sub-sectors have been equally vibrant, however. Most activity during the five-year period has been focused among bus and coach companies, which accounted for 61% of all transaction volumes from 2012 to 2016. (See chart 2.)

(Chart 2)

In general across the passenger transport sector, increasing passenger volumes are supporting a growing market, a trend particularly noticeable in rail and London bus transport. Companies are combining to boost capacity and drive economies of scale. Disruptive market entrants such as Uber are also having an impact, as private taxi firms follow a consolidation strategy to help them compete. Increased scale also enables investment in and more efficient use of technology (for example, to support route planning).

Who is doing most of the buying? The large integrated passenger transport groups have been the major consolidators over the period in review. Stagecoach Group, Go-Ahead Group, Rotala and Arriva together accounted for 26 of the 84 transactions – equivalent to 31% of all deals. However, private equity firms have also been involved in the sector. We’ve seen Carlyle Partners acquire Addison Lee, Exponent Private Equity invest in Big Bus Tours, and Vine Street Capital back Transport Innovation.

Deal volumes are one thing, but what about company valuations? Terms and conditions were disclosed for only 18 of the transactions completed between 2012 and 2016. For these, the mean enterprise value was 8.6x EBITDA. Valuation multiples appear to have been rising over the last two years so for business owners thinking about their exit plan, now could be a good time to consider a sale.

Look out for our next article in this series, which will focus on the bus and coach subsector – the liveliest in terms of recent M&A activity.