Aberdeen-based FirstGroup has announced the sale of two of its non-core businesses
FirstGroup plc announced on the morning of 23 April that it has entered into an agreement for the sale of First Student and First Transit to EQT Infrastructure.
Headquartered in Cincinnati, Ohio, First Student and First Transit are providers of transport services to schools and communities in North America.
First Student is the largest provider of student transportation in North America, operating in 435 locations across 40 US states and seven Canadian provinces. The business has a wholly-owned fleet of 39,500 revenue-producing vehicles and operates a further 2,500 leased or customer-owned vehicles.
First Transit is one of the largest private sector providers of public transit management and contracting services in North America, managing fixed route and shuttle bus services, paratransit operations, call centres for accessible transport and other light transit activities. The business conducted over 300m passenger journeys in 2020 and owns or operates 12,500 vehicles.
The sale of the two divisions follows the appointment of David Martin as Chairman in 2019, when the Board conducted a strategic review to consider all options to realise value for shareholders.
The Board formally announced the commencement of a sale process for the Group’s North American contract businesses First Student and First Transit in March 2020 in order to unlock value and focus on its bus and rail divisions in the UK.
Greyhound remains ‘non-core’ and the Group says it continues to pursue all exit options for it while de-risking its liabilities and actively managing its substantial property portfolio for value.
FirstGroup said the transaction will allow it to make a £336m contribution to UK defined benefit pension schemes and address other longstanding liabilities (including those relating to the Greyhound business) while ensuring the ongoing business is appropriately capitalised to continue investing for the future.
The transaction is subject to FirstGroup shareholder approval. Sale completion is expected in the latter half of 2021 following North American regulatory approval and FirstGroup expects adjusted operating profit for the 2021 financial year to be ahead of management’s previous expectations; current liquidity is in excess of £900m.
David Martin, FirstGroup Chairman said: “We are delighted to announce the sale of our North American contract divisions First Student and First Transit to EQT Infrastructure for $4.6bn (£3.3bn). This transaction, which follows a strategic review by the Board of all options to unlock value, enables FirstGroup to address its long-standing liabilities, make a substantial contribution to its UK Bus and Group pension schemes and return value to shareholders, while ensuring the ongoing business has the appropriate financial strength and flexibility to deliver on its goals.
“On behalf of the Board, I would like to thank all of our employees for their hard work and commitment in dealing with the immense challenges of the past year, and commend the team for delivering on the Board’s strategic objective to rationalise the portfolio.”
Matthew Gregory, FirstGroup Chief Executive said: “We are pleased to have agreed the sale of First Student and First Transit in a transaction which recognises their full strategic value. Both are resilient, high quality businesses with strong prospects for returning to normal levels of service following the pandemic. Our colleagues at First Student and First Transit have built excellent relationships with their customers over many years, and we are proud of their commitment and expertise. I would like to pay tribute to everyone in these businesses and acknowledge the vital role they play in their communities, both now and for many years to come.
“As economies begin to emerge from the pandemic restrictions and society begins the process of building back better, the vital role of public transport is clear. The services we provide are critical to economic activity and social objectives including ‘levelling up’, and play an important role in combating climate change and helping local communities flourish. Going forward, FirstGroup will be a more focused, resilient business that is in a strong position to deliver for bus and rail passengers in the UK, continue investing in its zero-emissions fleet strategy and play a key role in meeting society’s broader Environmental Social and Governance goals.”
Crosby Cook, Partner and Investment Advisor at EQT Partners, said: “First Student and First Transit play critical roles in North America’s transportation infrastructure; both businesses are market leaders, offering best-in-class safety, reliability, and service. EQT is excited to partner with the management teams of these businesses and invest in operational technology and fleet decarbonisation to provide even safer and more environmentally friendly transportation services to students and communities across the continent.”
FirstGroup said that “it has a strong platform on which to create sustainable value, and is well-positioned to help deliver wider economic, social and environmental goals at a key inflection point for public transport in the UK. Following completion and the proposed return of value, the Directors believe that the Retained Group will be a sustainable and cash generative business with a well-capitalised balance sheet and an operating model that will support an attractive dividend for shareholders.”
First Bus is also planning for a range of post-pandemic scenarios; the central case envisages passenger volumes recover to between c.80 and 90% of pre-pandemic levels during the first year after social distancing restrictions on public transport end, with further growth thereafter.