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North America exit nets Stagecoach $271m

Martin Griffiths says sale of group's last remaining international business will allow it to focus on "significant opportunities for growth in the UK"

Stagecoach has agreed to sell its North American division to Variant Equity Advisors, disposing of its last remaining international business. Announcing the $271.4m deal, Stagecoach chief executive Martin Griffiths said the move would allow the company to focus on "significant opportunities for growth in the UK where public transport has good prospects as the clear solution to the challenges of increasing road congestion and poor air quality".

By contrast, coaching operations in the US faced growing pressures. In December Stagecoach announced an £85m write-down in the value of its North American division due to "the increasingly competitive market environment, and the associated financial impact ... on long-term profitability".

On Stagecoach's core US coach routes covering north eastern states, competition has increased significantly over the past year following the end of an alliance between FirstGroup's Greyhound business and regional operator Peter Pan. Further large competitors in the north eastern region include Chinatown operators.

In addition, heavy new competition is expected to emerge from companies entering the coaching market on the back of mobility management, retailing and marketing technology. They include pan-European operator Flixbus, which bought the retailing element of Stagecoach's European Megabus business in 2016. Venture also fits into that category. Founded in 2017, its portfolio includes the Curb mobility management platform.

David Leeder, managing partner of consultancy TIL and formerly a main board director of FirstGroup, told Passenger Transport that attempting to compete against the new entrants would amount to "throwing good money after bad". He pointed out that because investors value these businesses as technology companies with potential for high growth, they have significantly greater funding available to them to develop routes and sustain a "coach war" than Stagecoach.

At the same time, he said Stagecoach's motivation for the sale may have included the need to invest heavily in UK bus networks and partnerships with cities to revive patronage. TIL's analysis has shown that where city mayors agree to implement bus priority measures to achieve wider economic and health policy aims, the investment companies will need to make to capitalise is of "an order of magnitude greater" than many may have assumed.

"The question is do the owners of the bus companies have the desire and ability to do that," he added. "The work we have done shows it's quite surprising how much capital you would need to invest to get an exciting level of growth. It may be that [Stagecoach chairman] Brian Souter has been running the same type of analysis. He's highly perceptive, got a big brain and now he has deeper pockets than a few weeks ago."