April 19, 2011 6:25 pm

Deutsche Bahn Arriva eyes £2bn spending spree

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Deutsche Bahn Arriva has amassed a £2bn war chest to invest in bus and rail contracts and acquisitions over the next three years as it anticipates a wave of consolidation fuelled by the liberalisation of the European transport market.

A year after the British bus and rail group Arriva was bought by the German state-owned group in a £1.5bn deal, David Martin, chief executive of Arriva, said the combined business would be interested in competing for five British train franchises in the next 18 months. These include the East Coast service, currently in state hands, as well as contracts in Europe and the Middle East.

Cash-strapped local authorities in Europe are selling off transport services in a process expected to lead to the full privatisation of the market by 2018. Mr Martin, responsible for the combined group’s expansion outside Germany, said Deutsche Bahn would be a key player, growing to “three or four times the size in five years’ time”.

Given the fragmented nature of bus and rail contracts throughout Europe, Mr Martin said most acquisitions would be “relatively small” bolt-on deals. But he also predicted there would be a wave of consolidation as companies seek economies of scale.

“There will just be three to four big transport groups in Europe in the next 10 years and Deutsche Bahn will be one of them,” Mr Martin said. “In the 1980s, the deregulation of the British bus market created 30 leading players; and that’s reduced to four. It will be the same with rail.”

The comments echo those made by Elliott Advisors, the activist US hedge fund, which has argued that National Express should consider a merger with a rival such as Stagecoach to give it the firepower needed to compete in the consolidating European transport market.

“There is so much money going round, it’s green fields right now,” added Mr Martin. The company, which employs 47,000 staff in 11 countries, said it had expanded its order book by 2.2 per cent to €11.9bn (£10.4bn) and won contracts in Malta, Denmark and the Netherlands.

Although Deutsche Bahn remains private, it attempted an initial public offering in 2008 and is expected to do so again. But a difficult winter when services were affected in Germany means it is unlikely to go to market within the next 18 months. “It will undoubtedly happen, it’s got to be a strategic option,” said Mr Martin.

Arriva merged with Deutsche Bahn after takeover talks with the French SNCF collapsed. Meanwhile, Veolia and Transdev completed a deal earlier this year.

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