Arriva Sold to I Squared by DB

[LNW-GW Joint]

Media reports say that DB is in negotiations with Miami-based infrastructure investor I Squared for them to acquire its Arriva unit.
That would include Arriva's operation of bus and train services in the UK and elsewhere in Europe.

MSN

FRANKFURT/LONDON (Reuters) - Miami-based infrastructure investor I Squared Capital aims to sign a deal to acquire Deutsche Bahn's international transport business Arriva as soon as Monday, three sources familiar with the matter told Reuters.
The deal would value Arriva, which operates red London buses and train services in the UK, at around 1.6 billion euros ($1.68 billion) including debt, the sources said.
However, while the deal is nearing final stages, the sources cautioned that the timing could still shift. Given that Arriva's business operations still need to be carved out of the German train operator, the execution and closing of the deal will take several more months to complete, the sources added.

Arriva's UK train operation covers DfT contracts to run Chiltern and Cross Country, also TfL's Overground operation (Arriva Rail London), open access operator Grand Central, and Arriva Traincare at Crewe which provides rolling stock maintenance to several TOCs.
Arriva's UK bus operation is also substantial.
Arriva has essentially been up for sale by DB for a number of years as DB seeks to concentrate on its domestic market.

Although I Squared has transport as one of its investment areas, I haven't found a train operator they own.
Most of their investments are in energy and communications networks.
They won an award "Transport Investor of the Year 2018", for their funding of TIR, the NL-based operator of road trailers.

I Squared Capital - Wikipedia

en.wikipedia.org

I Squared Capital is a private equity firm focusing on global infrastructure investments.
The company invests in energy, utilities, transport and telecom projects in North America, Europe and select high growth economies, such as India and China.

 

[heathrowrail]

Media reports say that DB is in negotiations with Miami-based infrastructure investor I Squared for them to acquire its Arriva unit.
That would include Arriva's operation of bus and train services in the UK and elsewhere in Europe.

MSN

Arriva's UK train operation covers DfT contracts to run Chiltern and Cross Country, also TfL's Overground operation (Arriva Rail London), open access operator Grand Central, and Arriva Traincare at Crewe which provides rolling stock maintenance to several TOCs.
Arriva's UK bus operation is also substantial.
Arriva has essentially been up for sale by DB for a number of years as DB seeks to concentrate on its domestic market.

Although I Squared has transport as one of its investment areas, I haven't found a train operator they own.
Most of their investments are in energy and communications networks.
They won an award "Transport Investor of the Year 2018", for their funding of TIR, the NL-based operator of road trailers.

I Squared Capital - Wikipedia

en.wikipedia.org

Would be better if they sold up to First Group but then the competitions authority would have a field day.

 

[LNW-GW Joint]

Would be better if they sold up to First Group but then the competitions authority would have a field day.

It seems FirstGroup backed out, leaving I Squared as the preferred buyer.

PS
In the Wiki article, a name appears as a senior policy advisor to I Squared in 2013 - Jonson Cox, then Chairman of the (UK) Water Services Regulation Authority.
Folk with long memories might remember his short spell as Chief Operating Officer for Railtrack, at the time of the Hatfield crash in 2000.
He was the individual who imposed 20mph speed limits for several weeks on most main lines, while inspections for GCC (gauge corner cracking) were made.
As Alastair Morton said at the time, after timetables had been destroyed: "the railway has had a collective nervous breakdown".
I have no idea if Jonson Cox is still involved with I Squared.

 

[deltic]

It seems FirstGroup backed out, leaving I Squared as the preferred buyer.

PS
In the Wiki article, a name appears as a senior policy advisor to I Squared in 2013 - Jonson Cox, then Chairman of the (UK) Water Services Regulation Board.
Folk with long memories might remember his short spell as Chief Operating Office for Railtrack, at the time of the Hatfield crash in 2000.
He was the individual who imposed 20mph speed limits for several weeks on most main lines, while inspections for GCC (gauge corner cracking) were made.
As Alastair Morton said at the time, after timetables had been destroyed: "the railway has had a nervous breakdown".
I have no idea if Jonson Cox is still involved with I Squared.

Jonson Cox is still a senior advisor to I Squared and chair of the Port of London Authority according to LinkedIn

 

[stuving]

In the Wiki article, a name appears as a senior policy advisor to I Squared in 2013 - Jonson Cox, then Chairman of the (UK) Water Services Regulation Board.

That article actually says Water Services Regulation Authority - the formal name of Ofwat. (The Water Services Regulation Board does much the same but in Kenya.) Cox was replaced in that post a year ago by - someone else you'll remember: Iain Coucher - Cox himself now chairs the PLA (Port of London).

 

[jayah]

Folk with long memories might remember his short spell as Chief Operating Officer for Railtrack, at the time of the Hatfield crash in 2000.
He was the individual who imposed 20mph speed limits for several weeks on most main lines, while inspections for GCC (gauge corner cracking) were made.
As Alastair Morton said at the time, after timetables had been destroyed: "the railway has had a collective nervous breakdown".

Being COO at the time of the derailment should be far more relevant than imposing the speed restrictions after the fatal derailment.

It was easy for Morton snipe when someone else's head was on the block if there had been another derailment.

 

[Mugby]

So will there be a name change on the way then?

 

[LNW-GW Joint]

So will there be a name change on the way then?

The Arriva name pre-dates DB ownership, and I should think it will be retained.

In Germany ÖBB has bought the Go-Ahead rail operation, but I believe it is retaining the Go-Ahead brand for those services.

 

[YorkRailFan]

Would be better if they sold up to First Group but then the competitions authority would have a field day.

I do doubt that a takeover of the UK's third largest bus company by the UK's second largest bus company would go down well with competition regulators. Along with First already operating numerous rail operators, SWR, GWR, Avanti, Hull Trains and Lumo, prices would likely rise on East Coast services with all Open Access Operators being controlled by First.

 

[Mikey C]

I Squared is a private equity investor rather than an operator. I imagine they'll look to sell Arriva on on due course.

 

[MotCO]

I Squared is a private equity investor rather than an operator. I imagine they'll look to sell Arriva on on due course.

If DB struggled to find a buyer for the whole operation, I suspect I-Squared may look to sell off the constituent parts piece-meal.

 

[dorsetdesiro]

The Arriva name pre-dates DB ownership, and I should think it will be retained.

In Germany ÖBB has bought the Go-Ahead rail operation, but I believe it is retaining the Go-Ahead brand for those services.

Probably to start with as OBB may possibly will come up with a new brand for non-Austrian services like NS uses Abellio for operations outside the Netherlands?

I thought DB would keep the Arriva name for anything outside Germany and just offload the UK subsidiaries so are they exiting all international markets?

 

[JamesT]

Probably to start with as OBB may possibly will come up with a new brand for non-Austrian services like NS uses Abellio for operations outside the Netherlands?

I thought DB would keep the Arriva name for anything outside Germany and just offload the UK subsidiaries so are they exiting all international markets?

DB have billions of euros of debt that needs financing. They’ve already been offloading bits of Arriva which isn’t very profitable. I don’t think the UK parts are particularly worse than the others? They’re probably quite happy that someone has offered them what they consider a decent price to take the lot off their hands so they can concentrate on their German operations.

 

[Archvile]

I Squared is a private equity investor rather than an operator. I imagine they'll look to sell Arriva on on due course.

Yep.. these companies tend to move on struggling businesses, cut the fat, then sell on in my experience.

 

[YorkRailFan]

I Squared is a private equity investor rather than an operator. I imagine they'll look to sell Arriva on on due course.

I do wonder if First will then buy Arriva after I Squared cuts the unprofitable parts of Arriva, obviously competition regulators would be tough to win over.

 

[PG]

I do wonder if First will then buy Arriva after I Squared cuts the unprofitable parts of Arriva, obviously competition regulators would be tough to win over.

IIRC they were all set to allow NX and Stagecoach to merge a couple of years ago, subject to a few select disposals, until Stagecoach had second thoughts and called it off.

 

[YorkRailFan]

IIRC they were all set to allow NX and Stagecoach to merge a couple of years ago, subject to a few select disposals, until Stagecoach had second thoughts and called it off.

Correct, I think it was only called off in 2022.

 

[Nicholas Lewis]

I Squared is a private equity investor rather than an operator. I imagine they'll look to sell Arriva on on due course.

Exactly what private equity does sweat the asset load it up with debt and then bail out. ie I Squared would only purchase this if they saw an opportunity to improve its efficiency which at first glance to outside looks like theres low hanging fruit. Of course we know across these forums thats easier said than done.

UK govt has golden shares in many of the privatisations which can block sales but not sure whether any provisions were made in the case of franchises / bus companies.

 

[Gerald Fiennes]

Private Equity? Jonson Cox? What could possibly go wrong!

The rail operations could be sold to First Group: the DfT and the UK competition authority would have to agree but the only obvious problem would be the Hull/Grand Central competition to Doncaster and, to some extent, the route from Bristol to the South West (although all revenue on franchises is now paid to DfT, not retained by operators).

The bus operations would presumably be slimmed down a bit, with some sold to Management and/or those Combined Authorities that wanted in-house operations. The London operations could be sold to a range of possible bidders but the remaining non-London companies would be hard to sell to other bus operators (for competition reasons).

 

[Bletchleyite]

The bus operations would presumably be slimmed down a bit, with some sold to Management and/or those Combined Authorities that wanted in-house operations. The London operations could be sold to a range of possible bidders but the remaining non-London companies would be hard to sell to other bus operators (for competition reasons).

Since the closure of the Northampton operation First is basically not present in the Home Counties to any significant extent, so the Shires could be sold to them with few issues, to be fair. And Go Ahead or Transdev may like to expand into new areas. I could see some operations being closed, though - Milton Keynes for instance is not very profitable and a shadow of the old MK Metro operation that went before, and has significant operational issues, so might well be better just finished off and letting someone else come in and have a go from scratch.

Similarly First basically has nothing at all in the Merseyside and Lancashire area away from Manchester, other than Cheshire which doesn't significantly overlap with the rest of it. It is mostly Stagecoach and Arriva land.

 

[Mugby]

Apparently the small operation in Derby is profitable (which surprises me) but it's in complete isolation, being administered from Leicester.
I thought it might have been the next Arriva disposal after they offloaded Burton-on-Trent to Midland Classic some years ago but perhaps no one was interested in taking it on.

 

[WAB]

Apparently the small operation in Derby is profitable (which surprises me) but it's in complete isolation, being administered from Leicester.

Well technically, not quite - the 2 does meet Arriva Leicester's 29 at Swadlincote. But yes, it's a rather neat and compact business unit, although 40 of their buses are from 2009 and so will be in need of replacement in the next few years.

Similarly First basically has nothing at all in the Merseyside and Lancashire area away from Manchester, other than Cheshire which doesn't significantly overlap with the rest of it. It is mostly Stagecoach and Arriva land.

How much of Arriva North West and Merseyside will be left after franchising? And again in Yorkshire, unless they bid, you're still looking at being left with the tiny operation in Selby and not much else.

Yep.. these companies tend to move on struggling businesses, cut the fat, then sell on in my experience.

It'll be interesting to see what they cut; the network is already very thin, HQ has been slimmed down, and fleet renewals have been slower than they should be.

 

[GreatWesterner]

The rail operations could be sold to First Group: the DfT and the UK competition authority would have to agree but the only obvious problem would be the Hull/Grand Central competition to Doncaster and, to some extent, the route from Bristol to the South West (although all revenue on franchises is now paid to DfT, not retained by operators).

You also have the two London to Oxford routes run by Chiltern and GWR.

Most Arriva UK TOCs are profitable, Grand Central had a rough time through Covid but is in a solid recovery position. European rail operations profitability varies by country.
The Arriva bus business is a different story, really struggling in the UK in particular.

 

[Clarence Yard]

All the DfT TOCs are “profitable” as they are just cash flow entities, for which the TOC “owner” just gets management fees off DfT.

So I Squared can’t load up either Chiltern and XC with debt and sell them on. TOCs also can’t just be sold on - the DfT has to approve change of owner.

Given that all DfT TOCs are now officially classed as “public non financial corporations”, with the DfT deciding services and fares levels, I don’t think the CMA will now be interested in those TOCs if there is a change of owner but GC will be another matter.

 

[Darren Hayward]

I wonder if the Bus division will be split off and sold separately Diamond could buy the Merseyside and West Lancs part as Diamond don't currently operate in that area could Rotala buy the company though Rotala may have to be investigated by the CMA

 

[Bletchleyite]

I wonder if the Bus division will be split off and sold separately Diamond could buy the Merseyside and West Lancs part as Diamond don't currently operate in that area could Rotala buy the company though Rotala may have to be investigated by the CMA

It is possible as others note that it might not bid for nor get any Merseyside franchises, which would just leave the small Lancashire operation around Skem - and isn't the 385 going to be a Merseyside franchise route despite hardly entering Merseyside? I could see the Lancashire bit just closing and the likes of Stagecoach and Preston Bus (Rotala) taking over, either commercially or tendered.

 

[LNW-GW Joint]

I'd have thought Arriva Traincare was a valuable asset.
It delivers a variety of services to several TOCs, and seems key to new train commissioning.
Pete Waterman developed a useful business after he took on the operation at Crewe (then branded LNWR), before selling out to Arriva.
It's not the kind of operation a single TOC would take on, maybe DB Cargo could take it on (assuming that business stays with DB).

 

[Tetchytyke]

I Squared is a private equity investor rather than an operator. I imagine they'll look to sell Arriva on on due course.

Private equity investors in the infrastructure sector tend to hold on to their assets for the longer-term, as we’ve seen with ownership of the likes of Condor Ferries. The infrastructure private equity investors are usually after consistent longer-term returns rather than the short-termism you see in, say, the retail sector.

My suspicion is their interest is more to do with the fact DB are desperate to offload Arriva and so there will potentially be a heavy discount available on the purchase price.

The underlying Arriva business is profitable. I don’t actually expect very much to change.

 

[richw]

I squared have clearly been after a U.K. transport firm for sometime.
They had a 1.2billion bid rejected for First group back in summer 2022.

 

[TheGrandWazoo]

Private equity investors in the infrastructure sector tend to hold on to their assets for the longer-term, as we’ve seen with ownership of the likes of Condor Ferries. The infrastructure private equity investors are usually after consistent longer-term returns rather than the short-termism you see in, say, the retail sector.

My suspicion is their interest is more to do with the fact DB are desperate to offload Arriva and so there will potentially be a heavy discount available on the purchase price.

The underlying Arriva business is profitable. I don’t actually expect very much to change.

Hooray - a bit of sanity from @Tetchytyke

Whilst the business of "flipping" businesses (i.e. buying them, extracting value, and then selling them) is widespread in other sectors, infrastructure businesses are less so simply because the long-term nature and the requirement to invest makes it less attractive to carpet baggers. Instead, they look to get consistent, long-term returns.