FirstGroup PLC (LSE:FGP) has continued its bus service acquisition spree with the purchase of French-owned RATP in London for £90 million including debt.
The deal follows the purchases in October of West Midlands-based Lakeside and Heathrow coach operator Anderson Travel.
RATP runs ten depots across central and West London with a fleet of 1,000 red buses, of which a third are electric and 3,700 staff.
Revenues in the year to end December 2023 were £271 million, with the business backed by £100 million of physical assets.
FirstGroup, which will pay £45 million and assume £45 million of asst-backed vehicle finance leases, said it expects the business to start to contribute to earnings and cashflow after 2026.
Graham Sutherland, FirstGroup chief executive, 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.”
Panmure Liberum added that the acquisition represents a return to the regulated London market, which FirstGroup previously exited in 2013.
RATP has around 12% of the London market, running some 90 routes under Transport for London (TfL) contracts.
Loss-making currently due to past labour cost headwinds, cost synergies, improved operational performance and contract re-pricing upon renewal should see margins improve steadily, adds the broker.
“We see this as a logical strategic move, building a more diverse and balanced bus portfolio.
“We raise forecasts by 2% for 2026 and 4% for 2027 and increase our SOTP-based target price to 230p from 210p. Our recommendation remains ‘buy’."
Shares jumped 6% to 162.7p.