Graham Sutherland – CEO of FirstGroup

The acquisition will see the Scottish transportation firm enter the London bus market with a strong position and will further grow and diversify its revenue. RATP London is one of the principal bus operators in the capital, with around 12% market share, comprising:

10 depots across Central and West London (four owned and six leased);

• a fleet of approximately 1,000 buses of which a third are fully electric;
• around 3,700 employees over 80% of whom are drivers;
• approximately 90 Transport for London (TfL) route contracts, typically of seven-year term; (weighted average remaining contract life of 3.3 years)
• revenues of £271m for the year ended 31 December 2023; and
• an experienced management team with a proven track record of developing and implementing a comprehensive turnaround plan that includes enhanced bid discipline and improved operational and cost performance

The enterprise value is underpinned by around £100m of physical assets including freehold property of around £50m.

The acquisition will be financed with £45m from the group’s existing cash reserves and the assumption of RATP London’s asset backed vehicle finances leases (c.£45m). Following completion of the deal, the group anticipates:

• the acquisition will be broadly earnings neutral in FY 2025 and FY 2026; onerous contract provisions totalling c.£40-50m will be utilised over several years;
• as the route contract portfolio evolves over the next five years, annual revenues are expected to grow to £300-350m, with operating margins in line with historical London levels of c. 6-7%;
• looking ahead, in addition to the measures included in the current turnaround plan, the Group has identified a number of potential synergies that could further enhance profitability;
• operating cash outflows of c. £30m, after bus operating lease payments and capex, in the first two years of ownership, following which the business is expected to be operating cash positive from FY 2027 onwards;
• RATP London’s current management team will transfer with the business and are expected to be retained post-acquisition.

The acquisition is subject to French government approval (in its capacity as the ultimate owner of the business) and is conditional on TfL consent to the change of control. The Group anticipates completion of the Acquisition in H1 Calendar Year 2025.

Graham Sutherland, FirstGroup CEO, said: “This is a significant acquisition for the Group that will diversify our portfolio and materially grow our earnings in the medium term. It allows us to enter the London bus market at scale and will also bolster our credentials as we participate in future franchising opportunities across the UK.

“We look forward to continuing to build on our relationship with TfL and welcoming RATP London’s employees into the Group, to continue the transformation of the business and to capitalise on the growth potential in the London market.”