Thursday, October 20, 2016

Major Acquisition Bid for Rail Freight Group Seems Likely to Succeed

Equity Firm and Channel Tunnel Operator Both Appear Keen
Shipping News Feature
UK – FRANCE – SWEDEN – The Eurotunnel Group has received a binding and irrevocable offer from private equity group EQT Infrastructure II, for the potential acquisition of its subsidiary, GB Railfreight (GBRf), the third largest rail freight operator in the UK. If the offer is accepted, EQT Infrastructure intends to integrate GB Railfreight into its indirectly owned Swedish rail freight firm, the Hector Rail Group, forming an integral part of EQT Infrastructure II’s strategy to create a leading independent pan-European rail freight operator.

Founded in 1999 by the current CEO John Smith, GB Railfreight provides a wide range of rail transport solutions and rail services to its customers, with a team of 650 people operating over 1,000 train loads a week, moving around 15% of UK’s rail freight. GB Railfreight has a fleet of over 130 locomotives and 1,100 wagons, transporting goods for customers including Drax, Network Rail, EDF Energy, MSC UK, Aggregate Industries and Tarmac. The GB Railfreight’s CEO said:

“We would be very pleased with EQT as our new owner and strongly believe that EQT’s industrial approach and network, extensive rail freight experience and access to capital would be of valuable support to GB Railfreight in our continued growth ambitions.”

EQT Infrastructure II says it would support GB Railfreight through both organic and acquisitive growth opportunities under the leadership of the new group CEO Joakim Landholm. EQT Infrastructure II claims it makes control or co-control equity investments in medium-sized operating infrastructure companies that have, or have the prospect of, strong, reliable, protected cash flows and significant opportunities for value creation. The investments will typically range between €50 million and €250 million. Bo Lerenius, Industrial Advisor to EQT and Chairman of the Hector Rail Group commented:

“GB Railfreight is a company that understands its customers, staff, and the industry in which it operates. The focus on innovation and delivery of outstanding customer service are two key factors that make us believe that GB Railfreight would be an excellent fit with Hector Rail. We look forward to working in close partnership with GB Railfreight’s management team, to support the company in its continued growth ambitions.”

The acquisition is subject to consultation with Groupe Eurotunnel’s staff representative bodies, after which EQT Infrastructure and Groupe Eurotunnel say they are both ready to quickly move forward with the transaction and enter into binding agreements. Groupe Eurotunnel acquired GBRf in 2010 for £25 million (at an exchange rate of £1=€1.17) and has more than doubled its activities, leading to forecast revenues of approximately £125 million whilst at the same time significantly improving its profitability. The Internal Rate of Return for the same period, from 2010 to 2016, estimated at the time of the potential sale, is just above 28%.

Following the consultation and acceptance of the offer, the companies say additional liquidity would open up new opportunities for Groupe Eurotunnel to develop its core infrastructure and transport business, particularly through the delivery of the ElecLink electrical interconnector project, for which construction works are now getting under way and which we wrote of in May this year.

The Group’s French rail freight activities, managed by Europorte in France, are not included in the offer received. Europorte France will remain focused on its own development to deliver improved customer service and which the company says has the goal of becoming the foremost private rail freight operator in France. Jacques Gounon, Chairman and Chief Executive Officer of Groupe Eurotunnel, said:

“I am convinced that EQT is the right owner to take GB Railfreight to the next level, given their strong focus on growth and sustainable long term value creation. GBRf has been a great success, proving that significant value can be generated in this sector. On the strength of its results, the Group will continue to favour long term investments and shareholder return.”