I Squared buys red London bus operator Arriva

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Infrastructure fund I Squared Capital has said it will invest more than €2bn in growing and electrifying the fleet of Arriva after taking control of one of the biggest operators of red London buses and train services in the UK.

The Miami-based infrastructure investment group on Thursday announced a deal to acquire UK-based Arriva, Deutsche Bahn’s international transport business, and expressed interest in further transport deals in Europe.

Financial terms were not disclosed, but the deal is worth about €1.6bn including debt, the FT previously reported.

Mohamed El Gazzar, a senior partner at I Squared Capital, said in an interview that the deal represented a bet on both decarbonising transport and the UK more broadly.

“We are very confident on this as a megatrend . . . If you want to meet any target when it comes to decarbonisation you have to think about electrifying the fleet,” he said. “There is no solution but to continue to deploy capital in public transport.”

El Gazzar said I Squared would “absolutely” hunt for more deals in the public transport space, adding that the group was “bullish” on the UK.

“We focus on deploying capital when there is a large growth story, and for us this is about an energy transition effort,” he said.

I Squared, which has more than $37bn in assets under management, made a £1.23bn bid for UK-listed FirstGroup last year, which was rejected as “significantly undervaluing” the rail and bus operator. The group also has other investments in the UK including energy solutions group Aggreko and trailer leasing company TIP.

The deal comes after years of effort by Deutsche Bahn, the German state-owned railway company, to offload at least part of Arriva to raise cash to lower its debt and invest in its ailing domestic operations.

“The agreed sale is an important step to focus even more on additional growth in rail transport in Germany,” said Levin Holle, Deutsche Bahn’s chief financial officer, in a statement.

Deutsche Bahn had considered a partial sale as early as 2016, having bought Arriva in 2010 for £1.5bn. Arriva has also sold off its operations in some non-core markets in recent years.

Headquartered in Sunderland, Arriva has 35,500 employees and operates rail services, local buses, commuter coaches and trams, transporting 1.5bn rail and bus passengers a year.

The company is best known for its position as one of the largest bus operators in London, where it operates the city’s iconic red double-decker buses for Transport for London.

It also has a significant presence in other parts of the UK bus market, and is responsible for about 15 per cent of the UK passenger rail market, including running trains on the London Overground network, and the CrossCountry and Chiltern Railways franchises. 

Among its other European operations, Arriva operates buses in Spain and Italy, and trains in the Netherlands.

The transaction is expected to be completed next year subject to customary closing conditions, including approval by German officials.