FirstGroup agrees to buy RATP London in £90m deal
By Josh White
Date: Tuesday 10 Dec 2024
(Sharecast News) - FirstGroup announced an agreement to acquire London bus operator RATP Dev Transit London the French state-owned from RATP Développement on Tuesday, for an enterprise value of £90m.
The FTSE 250 passenger transport operator said the acquisition marked its entry into the London bus market, as it aimed to expand and diversify its revenue base.
RATP London, which operates about 12% of the capital's bus network, includes a fleet of around 1,000 buses - one-third of which are fully electric - and manages 90 Transport for London (TfL) route contracts with a weighted average remaining term of 3.3 years.
The company generated revenue of £271m in 2023 and employs about 3,700 people, primarily bus drivers.
Its assets include 10 depots across central and west London, with freehold property valued at around £50m.
FirstGroup said it would finance the acquisition through £45m from existing cash reserves and by assuming £45m in asset-backed vehicle finance leases.
The company said it expected the acquisition to be broadly earnings-neutral in the 2025 and 2026 financial years, with onerous contract provisions of £40m to £50m to be used over several years.
Revenue was projected to grow to between £300m and £350m annually within five years, with operating margins aligned to historical London levels of 6% to 7%.
Initial operating cash outflows of £30m were anticipated in the first two years, transitioning to a cash-positive position by the 2027 financial year.
FirstGroup said it also expected synergies from the acquisition to enhance profitability further.
RATP London's management team would remain with the business post-acquisition, continuing to implement its turnaround strategy aimed at improving operational and cost performance.
Completion of the transaction was expected in the first half of 2025, pending French government approval and consent from TfL.
"This is a significant acquisition for the Group that will diversify our portfolio and materially grow our earnings in the medium term," said chief executive officer Graham Sutherland.
"It allows us to enter the London bus market at scale and will also bolster our credentials as we participate in future franchising opportunities across the UK.
"We look forward to continuing to build on our relationship with TfL and welcoming RATP London's employees into the group, to continue the transformation of the business and to capitalise on the growth potential in the London market."
At 0801 GMT, shares in FirstGroup were up 1.62% at 156.6p.
Reporting by Josh White for Sharecast.com.
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