National Express has bet on a recovery in the US school bus market with the purchase of an Ohio-based operator whose 3,300 yellow buses will increase the UK company’s fleet by 20 per cent.
In the first big deal by Dean Finch, chief executive, the Birmingham-based bus, coach and rail operator will buy Petermann Partners for $200m cash on a debt-free basis from Macquarie Global Opportunities Partners, the private equity buy-out group.
The purchase moves National Express’s focus further away from UK rail operations, where it has experienced a number of setbacks in recent years, including missing out in March on the shortlist to run the East Anglia train service.
It already owns two student transport companies in North America, and commands about 14 per cent of the US privatised school bus market. That makes it second only to Aberdeen-based FirstGroup, the leading operator by market share.
School bus margins have been squeezed at both UK groups as school districts’ budgets were hit by the economic downturn. But Mr Finch, who took the helm last February, said on Tuesday: “Our perspective is that the industry is now in recovery stage.”
Analysts said the group had also been distracted by the London-to-Edinburgh East Coast rail franchise, which it was forced to hand back to the government when passenger numbers were hit by the recession and payments became untenable.
Mr Finch admitted on Wednesday that the company fumbled its US school bus business in the past, trying to centralise functions it should have left to local managers. “Whilst I’m in charge we’ll never go down that route,” he said. He said predicted synergies of at least $5m from the Petermann deal would mostly derive from cost savings in insurance and buying power.
Petermann has operations across 10 states, although the bulk of the revenues come from Ohio, Texas and Illinois; sales for the year to June 30 reached $149.9m, making it the fifth-largest competitor in the country and generating operating profit of $13.5m.
Analysts at JPMorgan said the purchase price, which represents a multiple of 6.8 times Petermann’s earnings before interest, tax, depreciation and amortisation, was “not aggressive”. Geoff van Klaveren at Deutsche Bank called the price “rich” but cheered the move to bolster non-rail holdings.
Its shares rose almost 6 per cent on Tuesday to 233.4p.
The acquisition will be covered by existing funds, and is expected to complete in the final quarter of 2011. Macquarie recently sold another transport asset – the East London Bus Group – to Stagecoach, for a fraction of the price it had paid to buy it four years earlier. It did not reveal the price it paid for Petermann.
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