I Squared Capital withdraws from FirstGroup pursuit

I Squared Capital withdraws from FirstGroup pursuit

FirstGroup suitor I Squared Capital will not make a firm offer to purchase the bus and rail business, the Miami-based private equity firm has announced.

It brings a conclusion to I Squared Capital’s pursuit of FirstGroup. The withdrawal follows delivery of a final proposal on 15 August of 135p per FirstGroup share, with further contingent value from the earnout of the former First Transit subsidiary in North America.

FirstGroup’s board and its advisors quickly concluded that this final proposed offer significantly undervalues the business’s continuing operations and its future prospects, and that “the contingent value does not provide shareholders with sufficient certainty.”

I Squared Capital began its pursuit of FirstGroup in May, when it made several unsolicited and conditional offers. All were rejected by the FirstGroup board. They included one received on 25 May that offered 118p per share and up to 45.6p per share based on the First Transit and First Student earnouts following the sale of those businesses to EQT Infrastructure, and the net proceeds of the sale of Greyhound in North America to Flix.

In a statement issued following I Squared Capital’s decision, FirstGroup says that the appointment of CEO Graham Sutherland earlier in 2022 combined with a strong market position and a well-capitalised business that is cash generative leaves it with “a resilient and robust platform from which to develop and maximise both organic and inorganic opportunities that exist for growth in the core business.”

First Bus “continues to progress towards delivering its 10% margin target and further passenger volume and yield growth over time,” the group continues.

It adds that focus now is on adapting those operations to passenger demand and on “managing the challenging inflationary environment as pandemic recovery funding tapers off.” The group is also well placed to benefit from National Bus Strategy funding in England, it notes.

FirstGroup’s share price tumbled by over 10% after I Squared Capital’s withdrawal was announced, but quickly recovered some of that lost value.