Aberdeen-headquartered FirstGroup plc announced that it agreed to acquire RATP Dev Transit London Limited and its subsidiaries from RATP Développement SA for an enterprise value of £90 million.

FirstGroup said the acquisition will see it enter the London bus market with a strong position and will further grow and diversify the group’s revenue.

RATP London is one of the principal bus operators in London, with a 12% market share. It has 3,700 employees and operates 1,000 buses.

FirstGroup said the enterprise value of the deal is underpinned by £100 million of physical assets including freehold property of £50 million.

The acquisition will be financed with £45 million from FirstGroup’s existing cash reserves and the assumption of RATP London’s asset backed vehicle finances leases of £45 million.

The acquisition is subject to French government approval — in its capacity as the ultimate owner of RATP London — and is conditional on TfL consent to the change of control.

FirstGroup CEO Graham Sutherland said: “This is a significant acquisition for the group that will diversify our portfolio and materially grow our earnings in the medium term.

“It allows us to enter the London bus market at scale and will also bolster our credentials as we participate in future franchising opportunities across the UK.

“We look forward to continuing to build on our relationship with TfL and welcoming RATP London’s employees into the group, to continue the transformation of the business and to capitalise on the growth potential in the London market.”

RATP London was formed through the consolidation of London United, London Sovereign and London Transit bus companies. RATP London is most prominent in West London, and also operates in the north-west and south-west of the city.

“The majority of the senior management team joined the company over the last three years and have developed and implemented a comprehensive turnaround plan for the business,” said FirstGroup.

“Good progress has been made since the implementation of the plan, both in enhanced bid discipline with c.30 routes rebid over the past two years, including the early termination of loss making routes at contract review dates as well as improved operational performance and cost control, and workforce stabilisation.

“This improvement in performance can be seen in the TfL Q2 FY 2025 Bus Operator League Tables, with the three subsidiaries occupying first, second and fourth place in the league table for “operated mileage before non-deductible losses”.

RATP London operates 90 routes on behalf of TfL. These route contracts typically have a seven year maturity with on average, 13 contracts in the portfolio renewed each year.

As the route contract portfolio evolves over the next five years, FirstGroup anticipates that annual revenues will grow to £300 million – £350 million, with operating margins in line with historical norms in London of 6-7%.

RATP London reported group revenues of £271 million for the year ended December 31, 2023.

FirstGroup said: “The group anticipates that the acquisition will be broadly earnings neutral in FY 2025 and FY 2026, after the utilisation of onerous contract provisions of c.£40-50m that recognise contracts entered into prior to 2022 and were subsequently impacted by material labour market cost increases.

“The group will recognise these provisions on acquisition. The onerous contract loss provision release matches the losses being incurred on these contracts and will result in a broadly neutral impact in the group’s profit and loss accounts.”