FirstGroup sells US bus operations to EQT for about $4.6bn

UK-listed bus operator FirstGroup has agreed to sell its US bus operations to EQT’s infrastructure fund in about a $4.6 bln deal that will pass the operation of tens of thousands of yellow school buses to the Swedish private equity group.

The sale of First Student and First Transit will allow FirstGroup to shore up its balance sheet after the company reported roughly a $139m pre-tax loss for the six months to September. The rating agency Fitch warned in January that it may downgrade FirstGroup’s debt into junk territory if a sale of US operations was “unsuccessful”.

FirstGroup plans to use most of the proceeds to address longstanding liabilities and reduce debts, including repaying about a $415m of emergency government coronavirus loans. It will contribute roughly $466m to its UK pension schemes, while shareholders are in line for a 30p per share payout, totalling about $506m.

The deal values the businesses at 8.9 times their 2020 earnings before interest, tax, depreciation and amortisation, FirstGroup said. 

The sale refocuses the Aberdeen-based company on its UK business. FirstGroup had launched an auction in March last year but the coronavirus pandemic delayed the process.

First Student is North America’s largest provider of student transport with a fleet of 42,000 buses, while First Transit has 12,500 vehicles. The UK group is yet to sell its struggling US Greyhound intercity coach division.

“Both are resilient, high quality businesses with strong prospects for returning to normal levels of service following the pandemic,” said Matthew Gregory, FirstGroup’s chief executive. “FirstGroup will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK.”

Crosby Cook, a partner at EQT, said in a statement that the companies “play critical roles in North America’s transportation infrastructure” and that the private equity group would “invest in operational technology and fleet decarbonisation.”

The deal is a chance the private equity group to capitalise on any recovery from the pandemic. The sector has been fuelled by record sums of money committed to their funds and not yet deployed.

Rival buyout group KKR had previously considered buying the business, people familiar with the matter said.

Source: Financial Times