Passenger transport M&A: focus on the bus and coach subsector

Most merger and acquisition (M&A) activity within the passenger transport sector in recent years has been focused on bus and coach companies. Following our previous overview of the passenger transport sector as a whole, we now focus on this particularly vibrant subsector.

Between January 2012 and May 2017, we’ve noted 53 M&A deals in the bus and coach subsector: 34 involving bus companies, 15 involving coach companies and four among combined bus and coach businesses.

Unfortunately, details for only 11 of these deals have been disclosed – for five deals in 2012 but for just one in 2016, for example. This rather sketchy information shows a wide variety in median valuation multiples (enterprise value / EBITDA): from a multiple of 6.2 in 2012, to a low of 0.4 in 2014 and up again to a high of 16.8 in 2015.  

The lack of reported metrics makes it difficult for businesses to value themselves based on industry benchmarks. This means that each business needs to be evaluated on its own merits, with the input of an advisor with sector knowledge. What is clear is that there is substantial consolidation taking place in the bus and coach subsector, particularly involving larger players such as Rotala plc and Stagecoach Group.

Rotala completed several of the disclosed deals between 2016 and 2017, including its acquisitions of Green Triangle, Wings Luxury Travel, Wigan Coachways, Elite Minibus & Coach Services, OFJ Heathrow and Certain Worcestershire. Three further acquisitions followed in 2017: Wednesbury Depot from Arriva Midlands, Hansons (Wordsley) Ltd and the bus and minibus services business of Go Goodwins (Coaches) Limited. Rotala’s business strategy is to build the business by acquisition and organic growth around depots where there is a suitable population density and prospects for economic growth. The company currently has businesses in the South West, North West, Midlands and London Heathrow areas of England.  

Stagecoach has also been active in recent years, as shown by its acquisitions of Wigan Bus, Birkenhead and Chester Bus, Go West Travel, the South Devon operations of First Group, J.P. Executive Travel and First Manchester Limited (the Wigan bus business and assets). These deals have ranged across the UK, including Manchester, Birkenhead, Chester, King’s Lynn and Devon. The group’s strategy is to grow both organically and through acquisitions across all its operations.  

Other buyers have included Skills Motor Coaches, founded in Nottinghamshire in the early 20th century, which acquired Laver Holidays and Silverdale Tours.

Past activity isn’t necessarily a guide to the future, of course, but other indicators suggest we will see further consolidation in the bus and coach subsector. For example, according to the Department of Transport’s Annual bus statistics: England 2015/16 published in October 2016, passenger journeys in England fell by 2.6% year on year and vehicle mileage fell by 2%. Could this be the Uber effect? Whatever the cause, such a contraction in demand for bus and coach travel suggests more consolidation is on the cards. So too does the fact that, according to industry statistics, many bus and coach companies are owner managed businesses. Lack of succession opportunities for some of these will inevitably create a steady stream of owners seeking an exit.

As for the value any particular business will realise, the variation in multiples over recent years suggests that individual circumstances are key. In general, however, businesses are likely to be more attractive (and valuable) where they have long-term contracts (e.g. with schools) and good health and safety, insurance and environmental records.

So is this a good time for vendors to seek a sale? On the plus side, relatively high earnings multiples in the last two years (based on disclosed deals) suggest the timing could be good. An apparent fall in demand for bus travel could also argue against any unnecessary deferral of sale plans.

Disclosed bus and coach subsector deals:

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