FlixMobility, the $3 billion-German transportation startup that has doubled down on long distance buses and slowly and quietly gobbled up transit lines and operations across Europe, today announced a big move to raise its game in the U.S. The company announced that it is acquiring Greyhound Lines, the iconic U.S. bus network, from U.K.-based owner FirstGroup. Flix said the deal — which includes a vehicle fleet, trademarks, and related assets and liabilities — has an enterprise value on a debt-free/cash-free basis of $46 million, with an unconditional deferred consideration of $32 million with an interest rate of 5% per annum alongside that.*
FirstGroup acquired Greyhound back in 2007 in a $3.6 billion deal, part of a bigger strategy to take on the U.S. market (it also bought Ryder, the yellow school bus network, around the same time). But more recently it has been divesting a number of its U.S. assets in a bid to focus more on the U.K. market. It had in fact been looking to sell the assets Flix has now acquired since 2019. FirstGroup hived off its Greyhound facilities last December for $138 million, and in April sold off the bulk of the rest of the business to EQT, but that did not include the Greyhound transit network.
The deal signifies a huge move for Flix to double down not just on bus transport, but the U.S. market, where it was already active but with a significantly smaller profile. FlixBus, as the service is known, is today active in more than 2,500 destinations in 36 countries outside the U.S., working across 400,000 daily connections. Greyhound is actually nearly as big: It covers 2,400 destinations in North America, with almost 16 million passengers annually. (Flix’s last reported customer numbers were from 2019, pre-pandemic, and were more than 62 million; those figures would have drastically dropped in recent times given distancing and travel restrictions around COVID-19, which could be one reason why it does not provide more updated numbers.)
The deal is not about expanding Flix’s network, but also presence and mindshare. Greyhound is nothing short of an iconic presence. In a country fixated on travel, it has figured in dozens of famous songs, films and other art forms, albeit not always in the most flattering of lights.
And that somewhat extended to the business, too: Greyhound was a waning part of FirstGroup’s profitability, although Flix would argue that there is still a lot of mileage (sorry) left in long-distance bus transport — a profile that it believed, even as many stopped traveling anywhere, increased during the pandemic as it presented itself as a lower-cost form of travel at a time when gas prices have gone up, and air travel was too expensive or too difficult to manage, yet people still needed to get from A to B.
This is also where Flix’s tech comes into play. Like other transportation startups such as Uber but also those that have focused on longer-distance journeys like BlaBlaCar, Flix’s approach has been to take a legacy service — in this case buses (it also operates trains) — and apply better algorithms to determine pricing and routing and timing for the different buses on the network. Indeed, it has often been referred to as the “Uber of buses.”
It also generally does not own its fleet, working with third-party independent bus companies to operate vehicles that it brands itself. (I think it’s very unlikely to drop the Greyhound branding altogether however, given the iconic status of it.) However, this deal appears to represent a shift in that strategy. When the company raised its monster $650 million round earlier this year — a round it specifically said would be used to expand in the U.S., a long-desired frontier for the startup — we raised the question of whether it would, longer term, continue to pursue a model where it does not directly own buses, but instead works with third parties that take on that capital investment themselves (not unlike Uber). The Greyhound deal will include a fleet so it may well be moving further into that realm now.
Jochen Engert, FlixMobility’s co-founder and co-CEO said in a statement: “The continuous expansion of our services through partnerships and acquisitions has always been an integral part of our growth strategy to build our global presence. The acquisition of Greyhound is a major step forward in the U.S. The FlixBus and Greyhound teams share a common vision to make smart, affordable and sustainable mobility accessible to all.”
“Consumers across North America are increasingly seeking affordable, comfortable, smart and sustainable mobility solutions. A compelling offering will draw significantly more travellers away from private cars to shared coach mobility,” added André Schwämmlein, another co-founder and co-CEO of FlixMobility, in a statement. “Together, FlixBus and Greyhound will be better able to meet this increased demand. As our business continues to recover from the effects of the pandemic, we will replicate the success that we have already achieved in 36 countries outside of the U.S. with our innovative and customer-centric approach.”
*The more specific details of the transaction, as described to me by a Flix spokesperson:
The transaction results in cash consideration to the Group of $172 million, comprising $140 million paid initially, with $32 million in unconditional deferred consideration paid in installments over eighteen months.
Greyhound properties with an estimated net market value of c.$176 million will be retained by FirstGroup; they will initially be leased back to Greyhound at market rates but are expected to be sold over the next three to five years.
FirstGroup also retains certain legacy Greyhound net liabilities, including pension, self-insurance and finance leases settled at closing, which in total were valued at $320 million as at 27 March 2021, as well as grant receivables, buyout premia and other items estimated at a net cost of c.$47 million, against which the Group had retained $197 million of proceeds from the sale of First Student and First Transit earlier in the year.
The $140 million of Greyhound initial cash proceeds will be retained by the Group to support the close-out of these legacy liabilities and related net costs, with the balance of the property proceeds and deferred consideration resulting in c.$178 million (c.£128 million) in net value for the Group being realised over time.
The transaction is not subject to any closing conditions and will complete today.