First to re-enter London with RATP Dev acquisition

FirstGroup has signed an agreement to acquire RATP Dev Transit London and its subsidiaries.

First is buying the operation from RATP Développement SA (‘RATP Dev’) for an enterprise value of £90 million. It sees First re-enter London’s bus market after selling off its last garage in the capital in September 2013.

The acquisition is expected to further grow and diversify the Group’s revenue. RATP Dev London is one of the principal bus operators in the capital, with a share of around 12% of the market.

RATP Dev Transit London has been a prominent operator in the London bus market since 2011. The company operates 89 routes across west and central London from 10 garages, with a fleet of 982 buses.

For RATP Dev, the deal is intended to allow it to focus its resources on its urban rail strategy, in particular driverless metro and high-capacity commuter rail, and in markets where the company has a significant multimodal presence.

RATP London comprises of:

• Ten depots across Central and West London (four owned and six leased);
• A fleet of around 1,000 buses of which a third are electric;
• Around 3,700 employees, over 80% of whom are drivers;
• Circa 90 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;
• 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 approximately £50m.

The acquisition will be financed with £45 million 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 acquisition, First anticipates the newly acquired operation will be broadly earnings neutral in 2025 and 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 £300m-350m, with operating margins in line with historical London levels of 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 around £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 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 deal in the first half of 2025.

“This is a significant acquisition for the Group that will diversify our portfolio and materially grow our earnings in the medium term” – Graham Sutherland, FirstGroup Chief Executive Officer

Graham Sutherland, FirstGroup Chief Executive Officer, 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.”

“This strategic decision will position RDTL for continued success, development and capital expenditure under new ownership” – Mehdi Sinaceur, Deputy CEO and member of the RATP Dev Executive Board

Mehdi Sinaceur, Deputy CEO and member of the RATP Dev Executive Board, said: “This strategic decision will position RDTL for continued success, development and capital expenditure under new ownership, while allowing RATP Dev to focus its resources on its key markets and urban rail strategy, which is a core expertise of the Group. We are currently involved in six large-scale mobilisation, opening or extension projects for driverless metro and urban rail across the world, as well as eight major bids. We are confident that FirstGroup plc, with their wide-ranging expertise and commitment to driving modal shift and leading in social and environmental sustainability, is the ideal partner to support RDTL’s continued success and contribute to sustainable transportation in London.”