Following Deutsche Bahn’s decision to put Arriva up for sale, peers of the group’s former chief executive believe he could re-emerge on the scene

 
David Martin, a former chief executive of Arriva

 

Arriva’s former chief executive David Martin has been tipped to play a prominent part in a bid for the company he built following Deutsche Bahn’s decision to put it up for sale. A number of Martin’s peers in the transport industry told Passenger Transport that it would be no surprise to them.

“Someone you can never rule out if there is a deal to be done is David Martin. He is a man who lived for the next deal,” one former transport group director commented. “I’ve been assuming [since the idea of selling Arriva was trailed in January] that he may well re-emerge.”

It would never surprise me if David appeared in this somewhere.

Another, a former main board director, told Passenger Transport: “It would never surprise me if David appeared in this somewhere.”

Since retiring from Arriva three years ago, Martin has held a small number of non-executive directorships, currently at Scottish bus company McGill’s. It was observed that this activity is “hardly going to give him the rush he enjoyed” as a veteran of 200 business acquisitions and disposals dating back to bus privatisation. These included creating Arriva’s mainland European business from scratch and building it into one that operated across the continent.

Deutsche Bahn confirmed last week that it will investigate options for a full or partial sale of Arriva amid pressure on the company to reduce debt in order to finance investment in increasing capacity and improving punctuality on its domestic network.

The German national rail company’s supervisory board has instructed its management team “to assess the option of selling up to 100% of the shares in Arriva to one or more investors, and the option of an IPO [stock market flotation]”.

As well as reducing its debt which rose by 1bn to 19.5bn in 2018, DB said a sale would put Arriva in a stronger position to grow. An IPO had previously been planned in 2016 but was shelved due to uncertainty and difficulty in valuing the business caused by the result of the Brexit referendum, although those difficulties remain.

Deutsche Bahn’s management is expected to report on the options for a sale in September. Arriva’s businesses in 14 European countries generated revenues of 5.4bn (up 1.8%) in 2018 and operating profit of 300m (down 0.3%). The UK remains Arriva’s largest market where it is the third largest bus operator as well as holding the CrossCountry, Northern, Chiltern and London Overground train operating contracts.

Transport industry executives indicated that interest in acquiring the company was most likely to come from pension funds attracted by long term stable, if unexciting, financial returns and the potential for growth as European transport markets continue to open to competitive tendering. Private equity groups and cash rich sovereign wealth funds in the Middle East were also seen as potential purchasers. The possibility of DB selling Arriva was floated initially in the region in the New Year.

By contrast, existing European and UK transport groups were seen as unlikely to be involved due to the need for DB to raise substantial funding, ruling out selected disposals. For French pan-European operators such as Keolis and UK groups involved in the wider European market – National Express and Go-Ahead – a complete acquisition was seen as contrary to their stated strategy of expansion based on incremental growth. In addition, major European and UK groups apart from National Express would face significant competition issues requiring considerable asset disposals. “They may well think it’s not worth their while, and in any case they are not going to risk a big bang expansion,” a leading executive in the European transport industry commented.

Deutsche Bahn acquired Arriva in a £1.59bn deal in April 2010. Deutsche Bahn’s then chief executive, Rüdiger Grube, said he expected the deal to help his company expand further in Europe, targeting Europe’s “increasingly liberalised and fast-growing transport markets” which he said were “of strategic interest to Deutsche Bahn”.

 
Further coverage appears in the latest issue of Passenger Transport.

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