Thursday 10th March 2022
Forget that proposed merger-come-takeover between Stagecoach and National Express. That was last week’s news.
It turns out while those board room discussions had been going on including a deal with Comfort DelGro to offload Stagecoach’s share of Citylink as well as handing over Megabus and South West Falcon and the Competition and Markets Authority had begun its long drawn out investigation, interest was also being nurtured by Deutsche Bank on behalf of Stagecoach with another potential suitor (as opposed to Souter) which has now resulted in a new recommendation from the Stagecoach board to sell out to a company called Inframobility UK Bidco Limited which is indirectly owned by Pan-European Infrastructure III, SCSp (PEIF III) which in turn is an infrastructure fund managed and advised by DWS Infrastructure. That certainly all rolls off the tongue. Not.
It looks very much like National Express have been jilted at the altar. This new offer from the company with the never ending name is worth £595 million (“on a fully diluted basis”) whereas NatEx’s offer is said to have valued Stagecoach at £445 million. So you can see why the white coaches and a future HQ in the West Midlands has been spurned, even though there were already grand plans of who would be the new CEO and which senior directors in the new combined monolith would have divi’d up which office. I just hope the new desks and desk chairs hadn’t been ordered.
My expertise is certainly not in the world of big business corporate takeovers – I’ve no idea what that “fully diluted basis” means for example – I’m just a humble busman with a passion for public transport – so I’m probably not the best person to comment on this surprise development but I couldn’t help but take a look at any pertinent credentials and relevant background of this new owner for the much loved Stagecoach and see what could be in store for one of Britain’s largest and, previously, innovative bus companies. I appreciate nothing stands still, and change is inevitable, but I have to say the implications of what is now happening in the bus industry fills me with concern.
I can’t help thinking the reason an ‘infrastructure fund’ is willing to pay £150 million over how much a public transport PLC valued Stagecoach is for reasons aside from the infamous route 555 and its like being great bus routes it was desperate to get its hands on.
Previous priorities focusing on attention to detail on how buses perform, operate and are presented for passengers day in and day out are in danger of being subsumed by an increasing emphasis given to how much ‘value’ there is in the ‘infrastructure’ along with an insatiable obsession with corporate management speak and jargoneese which is as far removed from the bus passenger experience as Kent is from Kirkwall.
All the more so as more senior directors are being brought in to run bus companies only to then appoint their buddies from previous employers outside the industry who have absolutely no experience of running buses leaving long serving and hugely capable managers with valued experience and expertise missing out on career development and potential. How to murder middle management morale in one easy lesson.
So what can we look forward to for buses on Orkney, in the north, east and west of Scotland, the North East and Teesside, Lake District, Merseyside and Manchester, South Yorkshire and East Midlands, Midlands and Oxfordshire, the south east and south, west and south west if, as seems likely shareholders agree to this latest recommended deal?
We’re told “transportation and essential infrastructure represent a core sector of focus for DWS Infrastructure”. It has “multiple investments in the UK such as Corelink, Kelda (the owner of Yorkshire Water) and Peel Ports where DWS Infrastructure has actively supported capital expenditure investments of >£1 billion during its ownership”.
Never heard of Corelink? Nor me. It’s “a rolling stock lessor established by a joint venture of funds managed by Deutsche Asset Management and Infracapital”. Not so long ago it agreed to purchase £681m of rolling stock for use on the West Midlands rail franchise. Yorkshire Water supplies water to Yorkshire surprisingly enough and Peel Ports runs ports on the Clyde, Manchester Ship Canal, London Medway, in Liverpool, Heysham, Great Yarmouth and Dublin. I’m not sure that’s going to do much to reassure bus passengers on route 555.
What looks a bit more pertinent is DWS Infrastructure has also invested in Hansea, a leading Belgian public bus operator, “where DWS Infrastructure is supporting the acceleration of its growth strategy and has engaged with the relevant passenger transport authorities to agree a roadmap for the replacement of the company’s bus fleet with low or zero emission vehicles”. That experience might come in handy. But it’s a bit of a minnow by Stagecoach standards with a fleet of 810 buses. However, it is “the largest independent private bus company in Belgium” and “providing urban and regional connections on behalf of the public transport companies De Lijn and TEC”.
Perhaps the most significant snippet from the blurb about DWS Infrastructure is…… “DWS Infrastructure has a strong conviction about the UK bus market opportunity on the back of the introduction of Enhanced Partnerships and potential Franchising arrangements expected to drive increases in bus patronage and improvements in the quality of the service of the network” ….. noting reference to “strong conviction” … “opportunity” …. “and potential franchising arrangements”.
The use of that F word is certainly an interesting development. A new chapter for Stagecoach indeed, and in perfect timing coming yesterday on a day when the High Court dismissed the Group’s claim in a Judicial Review of Greater Manchester’s plans for franchising. It’ll now be full steam ahead for London style bus frequency cuts, fare increases and ending of integrated Travelcard type tickets for Mancunians, but at least the buses will all be painted the same colour. So that’s all good.
Those halcyon days when Sir Brian Souter’s charismatic entrepreneurial innovative flair drove the Group forward for so many years are now well and truly over. We won’t see the likes of that style of management again and the industry is the poorer for that. With Sir Brian at the helm a bid offer from the likes of DWS Infrastructure would have been aggressively fought off. Can you imagine Stagecoach of old succumbing to such a hostile bid? Now it’s welcomed with open arms.
There’ll be a vacancy for a new CEO with Martin Griffiths already earmarked for retirement under the previous NatEx plan. It goes without saying it’ll be someone with no experience of the passenger transport industry. These days such expertise seems to be regarded as an impediment.
Now it’s all about “Town Hall meetings” and “C-suite” – two of the latest management speak claptrap trends aka in old times ‘staff meetings’ and how many people with the word ‘Chief’ in their job title there are. Nothing to do with buses, so beware of those who use such rubbish terms. I reckon they’re cover for a complete lack of knowledge in what to them is an alien industry.
But to many of us it’s a very special industry with unique characteristics of high profile public service, staff motivation and entrepreneurship that makes it so endearing. No matter what the press release might espouse, that won’t be the case to the Board of Directors of an infrastructure company no one had previously even heard of.
And as for the jilted National Express …. how about a merger-come-takeover with Go-Ahead? That wouldn’t come as a surprise at all, not least with an announcement on the future of the GTR rail contract (it expires at the end of the month) expected any day now.
Blogging timetable: TThSSu.
Next blog, Saturday 12th March 2022: the postponed …. A dozen best practice initiatives from Transdev Blazefirld in Harrogate.
Inframobility UK Bidco Limited was only set up on the 5-3-2022 so there is no information really on it.
It is though basically an asset management company. Probably not good for Stagecoach employees or the passengers. They tend to asset strip it. If Stagecoach Own the garages they may be split off into a separate property company. Once they make a nice profit on the company they tend to sell it off
Still we will have to wait and see what happens. They are paying a considerable premium over what Nat Express offered and Nat Express would have seen Stagecoaches books
I dont understand the complexities of these things . I am baffled as to why they would offer over a £150M more than NatExpress . A NatExpress Stagecoach merger wul allow for a lo of costs being taken out. An asset management owning Stagecoach does not take costs out
They must see some considerable costs savings though. Maybe they will sell off under performing Stagecoach companies and sell off any property assetts
The resistered address is Solent Business Park, Forum 4, C/O Aztec Financial Services (Uk) Limited, Parkway South, Whiteley, Fareham, United Kingdom, PO15 7AD
Directors are Scott AUTY, Fund Manager He is also a director of INFRAMOBILITY UK MIDCO LIMITED (13954049)
INFRAMOBILITY UK HOLDCO LIMITED (13949468)
INFRAMOBILITY UK TOPCO LIMITED (13919225)
WHARFEDALE HONG KONG LIMITED (FC038899)
YORKSHIRE WATER SERVICES LIMITED (02366682)
KELDA EUROBOND CO LIMITED
Miguel Maria De Almeida Teixeira HORTA E COSTA Investment Manager
Florian HUBEL Investment Professional
What is a Fully-Diluted Basis?
By Ryan Roberts December 22, 2009 Venture Capital
The concept of a fully-diluted basis is not difficult. A fully-diluted basis just means the assumption of the highest potential amount of common stock a startup will have outstanding, regardless of vesting provisions and assuming all options and other securities like convertible notes are converted into common stock. That is, assume the highest share count possible.
I wonder if Inframobility UK Bidco Limited believe the value of the assets, particularly land, garages, bus stations etc, is greater than the offer from Nat Exp. In which case, will they sell off the assets, maybe leasing them back to a ‘new’ Stagecoach, but probably diminishing the Stagecoach we know today?
I could never work out what Buses Back Better meant. Now I know. Selling them off to an asset stripper.
Politicians have form. Even if they wanted a different outcome, their hands are tied. At least the MMC will be happy. S*d the public.
The last time a transport provider also happened to own a water company was Veolia….. be afraid!
National Express considering options after being jilted by Stagecoach
They could be considering a bid for Goahead or even Arriva
Bus and coach group National Express said it is “considering its options” after being jilted by merger partner Stagecoach in favour of a higher rival bid.
National Express remained tight-lipped on any further bid plans after Stagecoach ditched its support for their £1.9 billion tie-up on Wednesday and backed a £595 million takeover by German investment group DWS Infrastructure.
National Express said its board “will update the market in due course”.
The comments came as the group’s results revealed it swung to an underlying profit of £39.7 million in 2021, against losses of £106.1 million in 2020, and forecasted sales returning close to pre-pandemic levels this year.
On a statutory basis, it remained in the red with pre-tax losses of £84.9 million, but this was narrowed sharply from losses of £444.7 million in 2020.
Good to learn that a formerly great public transport operator is going to be in safe hands.
I second the cynicism.
If they’re right and there’s real potential in the bus industry as part of the solution to climate change (and let’s hope there is), then as these large corporates destroy value in the way we see at Arriva, there must be opportunities for new Brian Souters to build new businesses to take their place.
And let’s not forget the sale of Stagecoach London’s businesses to an Australian bank for a large sum, on grounds that sound similar, and their repurchase a little later for a rather smaller sum. Opportunities all round!
Let’s hope the new generation of real bus managers are up for this.
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A windfall for those about to cash in their Stagecoach retirement shares. Well done Sir Brian and Lady Ann.
It is interesting when it comes to franchising that we are yet to have the legal challenge about no compensation to operators who have their business forcibly taken away. The legal president for nationalisation is that there should be compensation but this isn’t the same as you have the ability to win back your previous work and more, though in GM Abellio might be the winner thanks to its vocal support.
“All the more so as more senior directors are being brought in to run bus companies only to then appoint their buddies from previous employers outside the industry who have absolutely no experience”
Hey, why should the bus industry get to escape the destruction of UK businesses in other sectors? This is exactly what’s happened to UK industry, UK retail, UK rail, UK pretty much everything.
Maybe once we have no functioning big businesses left there’ll be a realisation that you can’t actually run businesses without knowing anything about them.
Never mind; it’ll all be irrelevant if Putin presses his Big Red Button to prove that he can win his war.
The intervention of the MMC has allowed a foreign investment vehicle to buy a British company rather than it be sold to a British company with experience in the industry. Is this what Brexit is for? Seriously though it should give NX food for thought about any British takeovers or mergers.
Much of Stagecoach’s growth in the late 80s was financed by property sales, so the wheel has gone full circle. The other part of the equation is that Sir Brian and his team were really good at running buses.
Stagecoach has lost its way more recently. A lot of experienced managers retired and group management do not trust local management to do a good job.
The takeover blurb sees opportunities that many in the industry take with a pinch of salt. But then you would not state that your intention is to asset strip, refinance and run off with the profit.
The light sprinkling of government fairy dust is all about photo opportunities not making lasting improvement.
This takeover does not bode well.
You can’t have the North East and Teesside as it is in the north east! Admittedly the Stagecoach NE bus operation is disjointed and no linking services between the Tees operation and the Tyneside/Wearside one although they did have a crack at an express service from Middlesbrough to Newcastle via Hartlepool.I think that the most northerly Teeside Stagecoach bus must be the number 6 to Hartlepool’s Clavering Estate and guessing, although I don’t know that area well enough, the most southerly Wearside operation must be to the southern suburbs of Sunderland leaving a significant gap between the two.If I recall correctly Hull’s Stagecoach buses where in SNE too despite being nowhere near the other two(well 3 as Darlington was probably owned by them still at the time….also with no route link with the Teesside and Tyne/Wear operations)but Hull was moved into the East Midlands although the East Midlands begins south of the Humber….the governments Yorks and Humber region aside which splits Lincolnshire….what does Stokesley have in common with Scunthorpe?! Stagecoach took over municipal operations; Hartlepool and Darlington Corporations, Cleveland Transit and Tyne and Wear PTE buses giving them only a local urban reach whereas Go Ahead and Arriva took over Northern and United giving them a regional reach.
Interesting piece of news – I read it here first, so thanks Roger!
Of course we aren’t party to discussions between Stagecoach and the CMA but I wouldn’t mind speculating that some of the requirements to divest interests may have gone beyond what was proposed by Stagecoach…
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At least, currently, Ray O’Toole still being the Chair and Martin Griffiths being Chief Executive, they are veteren bus people, and should be included in the loop for dicsucssion of the many initatives we were puzzled.
Thanks for giving us this hot news (and for all the other fascinating blogs).
I’d always thought that Stagecoach were the villainous asset-strippers; at least that’s what a disillusioned bus-driver told me back in the days they were taking over Southdown etc.. The biter bit, perhaps.
I wonder if the ‘infrastructure’ bit is to do with the enormous investment which will be required in charging facilities for electric buses. Reading Phil Stockley’s piece on that in Buses magazine a few months ago, I wondered whether it would amount to the same as investing in trolleybus infrastructure, which, after all, would dispose (mostly) of the problem of sourcing the rare metals needed for batteries, and give us back a well-understood, cheap-to-run, quiet, fast and popular variety of public transport. Maybe Inframobility…… will look at that also.
I do hope NatEx will leave Go-Ahead alone … but Arriva? now that might be a better idea!
Some of the previous commentators have referred to Stagecoach having been an asset stripper. While this was true in that they sold premises, they did then invest heavily in more modern vehicles, True asset strippers are the people who acquired businesses like department stores, sold the properties at a profit and then sold the now under capitalised business on, leaving it with a heavy rent bill.
It is an unfortunate characteristic of many public companies that they hire managing directors who have no previous experience in that type of business.
On the other hand, Brian Souter trained as an accountant but his dad was a bus driver and he worked as a student conductor in Glasgow so clearly knew all about the realities of bus operation.
Stagecoach have been in a bit of a state since some senior folk at UK Bus departed 3 or so years ago. Not long after there were a number of things which i know did not go down well at local teams such as marketing dictats, special ticketing offers being foisted on areas without a thought about the affect on revenue and of course the rebrand.
Its a shame really, as there were a lot of good people at local level within Stagecoach.
Will NatExress now look for another partner ?
They have been moving towards a more corporate branding and bringing more operations in house. A take over or merger with most of the other groups is less likely to raise competition issues. The main area where that is likely to be an issue is London but the London operations o could be floated off as a separate company
Having a good geographic spread of operations would mean most of the Nat Express coach operations could bee bought in house
Given the bus back better strategy having Bus, Coach and Rail could be beneficial as well particularly when it talks of integrated ticketing
Martin Griffith is remaining CEO after the takeover!!
Of Stagecoach but not the holding company
Flies to a honeypot…
Brexit Brits hardly thought they could keep it to themselves, did they?
Roger clearly does not approve of DWS Infrastructure. But might they actually be a good owner. This type of owner is looking for consistent returns of 4-7% to pay a sensible dividend on a regular basis. And that’s just what transport can do, in normal times. They also have the ability to borrow cheaply with their diversified asset base.
In my view Stagecoach’s (and others) main failing over the years has been greed. Transport is basically a utility and to aim to get 15% margin out of a utility is usury, and should have been stamped upon by the Competition authorities, but sadly they have never had a clue about how to regulate bus monopolies.
When Brian Souter said he was on track to make a 15% margin , which he never actually achieved, Moir Lockhead at First tried to emulate that and locked First into its spiral of decline that has only recently been reversed. And latterly with only two areas of the Stagecoach empire getting close to that level(Manchester and Newcastle) that has encouraged both PTA’s to attempt the franchising route to get that apparent pot of gold. So Stagecoach has actually planted the seeds of its own demise. If franchising succeeds in Manchester (and Andy Burnham has basically put his Mayoral position on the line to make it happen) then the taxpayers of Manchester will be saddled with the costs for a long time.
One of the lessons of COVID has been how nimble to commercial world has been versus the state regulated world (eg the railways, Tfl etc) and now Manchester will move into the latter camp, and costs will spiral whilst services at best will stagnate.
The English bus industry is very likely to have to go through a very painful restructuring over the next 18 months, of the which I am sure that DWS is unaware. As a new broom often sweeps clean hopefully it might look at the current senior management and realise that as they have presided over the decline of the past few years, listening to middle managers closer to the coal face might produce a better customer and ultimately financial result.
As a large part of the bus market in the PTA areas moves towards a contracted model with contractual returns of 5/7%, a new owner who can take a fresh view might be the best way forward. What is ironic is that DWS is a German company that no doubt has looked at the German owned Arriva that’s been on the market for several years and could not see it as an attractive acquisition.
I find it genuinely interesting that there is doom and gloom over franchising.
The operators only have themselves to blame with the local/political desire for franchising, particularly in the ex-PTE areas.
GM, for example, the operators have made great money on the primary corridors (the 192, for example, must coin it in), but elsewhere have suffered cut after cut. The expansion of Metrolink should have been an opportunity for integration, but instead the operators saw it as a threat and opportunity for cutbacks (just look at what’s happened to the Oldham corridor, that has withered away).
West Yorkshire isn’t much better – while the focus has been on the heavy investment in Leeds, my old hometown of Huddersfield just keeps on seeing cuts and cascades from elsewhere with new buses few and far between.
I can see what Burnham (and his contemporaries elsewhere) want to do. Cities like Manchester genuinely deserve an integrated network, and it has multiple modes to allow this.
As for the comment on London, even with cuts there is still a bus network that is vastly better than most, especially evening and Sunday services. Where I live in Hythe, on the Kent coast, I have no buses *whatsoever” after 1900/2000 on Sunday evenings. Sure, in London the population density can justify better, but too many provincial towns have little or no evening/Sunday services, and this is one of a number of indictments of the deregulated system.
Finally, another way to look at this – in too many parts of the UK (your old patch of Brighton in particular excepted), the current and previous bus industry managers have presided over decades of decline. Perhaps some outside knowledge is needed after all?
Good for Stagecoach. Years of harassment from the overpaid, bureaucratic competition authorities, still intent on interfering, and being constantly told by “jumped-up” tin pot “Mayors” wrestling to snatch their business. “Greedy Bus Barons” being one of a number of insults hurled, quite forgetting that under franchising, profits still need to be made or there would be no companies available to tender.
Yes, proof that Stagecoach finally lost it’s way when the new “liveries” appeared has to be accepted and in all common sense, a merger with National Express would have been a sensible way forward, certainly for passengers. But I cannot but applaud the decision to take the money and run, as the consequences of selling out to possible asset-strippers might just wake up those who clearly don’t realise the contribution Stagecoach under Souter have made to the bus industry over the last forty years.