Stagecoach buys back US arm it sold at a loss ten years ago

The Perth-based group, led by chief executive Sir Brian Souter, is buying nine businesses from bus operator Coach America, which has been in bankruptcy protection since the start of the year.

Stagecoach will pay $134.2m (£85m) for the businesses, with the option of buying a further 85 coaches for up to $25.6m. The deal needs regulatory approval but is expected to be completed within three months.

Souter said: “Our North American division is the fastest-growing part of the group and this transaction will allow us to acquire selected businesses and vehicles at attractive prices in markets and regions we know well.”

In a trading update last month, Stagecoach said like-for-like sales in North America were up 14 per cent in the 11 months to the end of March. That compared with sales growth of 2.7 per cent across its UK regional bus operations.

The deal, announced yesterday, marks a return to areas that the Scottish firm vacated in 2003, when the group scaled back its troubled Coach USA business, selling off most of the division.

Stagecoach paid $1.8 billion for Coach USA but by the end of 2002 it had written down the value of the business to £376.9m and said it would restructure its operations to focus on the north-eastern regions of the US. In June 2003, private equity firm Kohlberg paid $155m for the south central and west regions of Coach USA, which eventually became the Coach America business.

A spokesman for the group said: “When we first acquired Coach USA in 1999, it’s fair to say the business then was too big, and the price we paid was too high. Very soon afterwards, there was the impact of 11 September, which had a knock-on effect for various types of transport, such as airport and charter services.”

It is acquiring nine businesses from current owner Coach America, in locations covering California, Georgia, Maryland, Nevada, Ohio, Oregon, Texas and Wyoming. All but two were previously owned by Stagecoach.

Because Coach America is in Chapter 11 bankruptcy protection, the spokesman said Stagecoach had been able to take its pick of the strongest parts of the business. He said: “When we sold our operations in North America, as part of that package we had to sell good businesses as well as ones that were underperforming. Now we’ve been able to bid for the good parts of the business while excluding the weaker assets. We’re buying good, profitable businesses that we’ll continue to run for profit.”

The deal will help the group expand its budget Megabus operation, which it introduced to North America in 2006.

Souter said: “The acquisitions in Texas and California in particular will give us an extended geographic footprint to accelerate our growth strategy for the brand, which already covers around 80 key locations.”

The businesses being acquired generated operating profits of $13.3m last year, on revenues of around $164.4m, and have estimated gross assets of $92m.

Nuno Brito e Cunha, an analyst at Espírito Santo, said: “Overall, a sensible deal at reasonable multiples at first glance.”