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Friday, 15 October 2010

East London

The announcement of the sale of East London Bus Group back to Stagecoach today is remarkable for the industry.

Stagecoach successfully targeted the strong East London at privatisation, taking the weaker Selkent business in the same process. MacQuarie Bank acquired this business from Stagecoach in 2006 for £263m. At the time it was the high-watermark for the value of bus businesses in London catching the segment, and the market, at its peak. Today it bought it back for £59m.

Brian Souter correctly judged that he had extracted the most from his London bus operations and the expansionist phase of the Livingstone-era was over. With his exit he banked funds which would make his Group relatively cash-rich and well equipped to invest in other parts of its business empire.

The new owners were determined to preserve their company's market share despite the increased activity in the area brought about by Go-Ahead's acquisition of Blue Triangle and bidding was fierce. To the benefit of taxpayers the cost of bus contracts in the area was kept down as the companies in the area did their best to win contracts as they were offered.

However, the London bus business requires close attention to detail whilst retaining a continuous competitive advantage and of late it seemed all was not well at East London. This was confirmed when the business parted company with its hugely-respected Chief Executive Nigel Barrett who had continued to try and balance the expectations of the owners with the requirements of TfL, which, it has to be said, is only achieved by the performance of the staff.

In due course the intentions of the owners to sell the business became clear and whilst many would-be entrants into the London market might have been interested, Stagecoach nevertheless did the deal.

In the same way that its exit appeared to draw a line under their interest in contracted operations, its return sends a different signal and one which must have industry pundits scratching their heads. Is this an opportune acquisition? The industry respects Brian Souter's business judgement, but in addition to the consideration paid, the financial performance of the business will be constrained by prevailing contract prices and market conditions in a time of tight financial limits. What brings Brian Souter back to London at this time?

One of the services on their area which Capital Citybus won in the early 1990s and so never was operated by East London was the 236 - a real favourite of mine as it meandered its way across North London and represented here by an MRL of the period.


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