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Infrastructure investor I Squared Capital is closing in on a deal to acquire Deutsche Bahn’s international transport company Arriva, one of the UK’s largest operators of red London bus and train services.
A deal to acquire the company could be completed within days, people familiar with the matter said. The company carries 1.5 billion rail and bus passengers every year and operates in 10 countries.
Some of the people familiar with the matter said the deal values Arriva at about 1.6 billion euros, including debt, and cautioned that the deal has not yet been finalized and the timing could still change.
Deutsche Bahn, Germany’s state-owned railway company, has been trying to sell at least part of Arriva for years to raise cash to reduce debt and invest in the troubled domestic business, and considered a partial sale as early as 2016.
Arriva employs 35,500 people and operates rail services, local buses, commuter buses and trams. The company has a significant presence in the UK, operating 4,700 buses and trains covering 15% of the passenger network, including the London Overground system and the CrossCountry and Chiltern rail franchises.
Deutsche Bahn’s annual report shows that in 2022, Arriva’s annual sales will increase by 3.6% year-on-year to 4.2 billion euros, accounting for 7.5% of the German group’s total revenue. The division is barely profitable, with an adjusted operating profit of just 12 million euros last year and an operating loss of 73 million euros in 2021.
The company has already divested parts of its business and exited countries including Denmark, Serbia and Sweden, following a strategic review to “refocus” the business in 2020 and 2021.
The expected deal joins a series of transport deals privatizing some of the UK’s largest listed rail and bus companies.
I Squared Capital is a global long-term investor in various sectors including energy and telecommunications in addition to transportation. The company has made acquisitions in the industry before, such as its 2018 acquisition of trailer rental company TIP.
Executives at the group said they see opportunities in areas such as the electrification of urban transportation. Last year, I Squared attempted to acquire First Group, but its £1.23 billion bid for the rail and bus operator was rejected as “significantly undervaluing” the company.
In June 2022, Go-Ahead accepted a takeover bid of approximately £650 million from an Australian bus operator backed by an international pension fund. On Thursday, Go-Ahead announced the sale of its German rail business to Austrian state railway ÖBB, without disclosing financial details.
In March last year, Stagecoach agreed to a £595 million takeover bid from German asset manager DWS, a move that thwarted a separate takeover bid from National Express.
Industry executives believe the industry will benefit from European government initiatives to reduce car use and promote public transport to help achieve net-zero carbon emissions. The UK market has also moved towards longer-term contracts, which are attractive to infrastructure investors.
I Squared declined to comment. Deutsche Bahn declined to confirm details of the deal in a statement but said it hoped to spin off Arriva by the end of 2024.
“This process is ongoing and we have made significant progress over the past two years. We have sold operations in several countries,” the company said.
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