Urbanisation: Driving Rail Investment

  • Jul 2016

Rail Technology Magazine asked Patrick Groarke, Partner at Livingstone, for his thoughts on how urbanisation is driving M&A activity in the Rail sector.

UK rail has seen an active start to 2016 in terms of mergers and acquisitions activity, with two private equity houses making new investments in the sector.

The fact that the sector has continued to provoke acquirer and investor interest against the background of ongoing debate over high profile projects such as HS2 and the findings of the Hendy review is testimony to its strong fundamentals. Both financial investors and strategic acquirers are attracted by structural growth driven by urbanisation, and of course the relative strength of the UK economy.

From 2004 to 2014 population of the five largest cities in the UK grew 14%, whilst the urban population grew 11%, and the population as a whole grew only 8%, according to the ONS.

This concentration of the urban population in large cities is set to continue, both in the UK and globally.

City living reliably drives demand for rail
For the rail industry, this migration towards urban – and particularly city – living is a dependable driver of growth in passenger volumes as the higher population density of urban environments favours public transport, particularly rail.

Structural growth drivers attractive to acquirers and investors
Recently we have seen two overseas strategic buyers – Ricardo and SNC Lavalin – choose to acquire high quality international businesses, based in the UK.

In the case of Ricardo, a significant component of the motive to buy Lloyd’s Register Rail was to secure market-leading expertise and capability that could be applied across a multi-national business.  In acquiring Interfleet, SNC Lavalin gained a business that had already developed a significant international platform, which it saw the potential to both grow and integrate with a broader range of services.

Positive long-run structural trends in the distribution of population and modes of transport make the UK rail industry attractive to strategic acquirers, both domestic and overseas, and private equity investors. Despite the inevitable political uncertainties of the sector, deals are getting done and high quality businesses are achieving attractive valuations -recognition of market-leading expertise in the UK rail industry.

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