German railway group Deutsche Bahn (DB) is selling its British subsidiary Arriva, which operates bus and train lines in ten European countries, to US infrastructure investor I Squared Capital. DB, which acquired Arriva for 3 billion euros in 2010, wants to focus on its core market in Germany.

According to the German press, I Squared Capital paid 1,6 billion euros for the acquisition, including 1 billion euros in debt. The deal is expected to be completed in 2024.

13 000 buses and 600 trains

Arriva is mainly active in the UK and is known for its iconic London red double-decker buses, among other things. But it is also very busy in the Netherlands, mainly in the northern provinces, as well as in Limburg and the eastern part of the Netherlands. It has about 35 000 employees and operates nearly 13 000 buses and 600 trains in 10 European countries, including the Czech Republic, Hungary, Poland, Denmark, and Italy.

Deutsche Bahn – owned by the German government – went ahead with the sale to free up cash to accelerate debt reduction and meet substantial investment needs in Germany, where rail development is a government priority to reduce greenhouse gas emissions.

Like many other transport companies, Arriva must invest a lot of money in greening its bus fleet, so Deutsche Bahn would rather not lose that money to a foreign subsidiary. “For us, the agreed sale is an important step to focus more on additional growth in rail transport in Germany,” said Deutsche Bahn chief financial officer Levin Holle.

Deutsche Bahn is currently engaged in a titanic project to modernize its fleet and network, which are criticized for frequent breakdowns and delays. According to the German government, rejuvenating its aging network would require an investment of more than 8,6 billion euros per year over a decade.

Wanting to sell in 2019

The deal never seemed to work, and Deutsche Bahn’s decision to buy Arriva in 2010 was controversial. It wanted to sell Arriva, headquartered in Sunderland, as early as 2019, but it didn’t prove easy to find a suitable candidate.

At 4 billion euros, it first appeared to be overvalued, while a stock-market launch also failed to get off the ground. The fact that Arriva was performing poorly didn’t really help either. The rail company then decided to sell Arriva’s operations gradually while the search for a buyer continued. Several markets covered by Arriva were sold in recent years, including Sweden and Portugal.

The Miami-based I Squared Capital markets itself as an investor in energy and utilities, telecoms, and transport. It has interests in 59 countries and manages assets of almost 40 billion euros. The companies I Squared Capital owns or controls by its shares employ over 27 000 people.

The company says it often makes efforts to make bought-up companies more sustainable. Arriva’s CO2 goals – the company wants to become climate neutral in the future – would therefore align well with I Squared Capital’s strategy.

Concerns in the Netherlands

The Dutch province of Limburg is already considering whether to continue or terminate the agreement with Arriva now that the carrier has changed hands. The agreement between Arriva and the provincstateste that Limburg, where Arriva operates trains and buses, may terminate the cooperation if the airline changes ownership.

In the Netherlands, Arriva employs 5 500 people and operates about 1 500 busses and 164 trains in the privatized public transport domain. Local politicians are now concerned because it is unsure whether the company now sees public transport purely as a source of revenue or more as a public service. Especially because it is the first time that I Squared Capital has bought a company operating in public transport.

According to The Guardian newspaper, the company wants to invest around 2 billion euros in electrifying and expanding its fleet.