FIRSTGROUP PLC - Statement re: Sale of First Student and First Transit

Coast Capital's latest statement contains numerous inaccuracies, including in relation to the transaction multiples, as explained below.

EBITDA multiple

In the announcement of 23 April, the Group disclosed a transaction multiple of 8.9x March 2020 EBITDA. Coast Capital’s stated alternative EBITDA multiple is grossly misleading by 2.4x for the following reasons:

• it incorrectly compares GBP EBITDA and the USD Sale value at materially different exchange rates ($1.29:£1 and $1.40:£1 respectively) rather than performing the calculation based on the underlying US dollar values which are reported (a difference of 0.6x EBITDA),
• is based on post-IFRS 16 financials (a difference of 0.5x EBITDA) but compares to other transactions on pre-IFRS-16 basis,  
• it excludes any value for the Transit earnout of $240m entirely (while agreeing that First Transit has substantial value in excess of the $380m at which additional value will accrue to the Group – a difference of 0.5x EBITDA), and
• It fails to adjust for lower working capital and deferred capital expenditure which lowered the Group's net debt position as at 31 March 2021 and transaction costs (a difference of 0.8x EBITDA).

Book value multiple

The Sale is described by Coast Capital as "at a significant negative premium to book value". However as previously noted the net proceeds on sale are above book value as at 30 September 2020, even before taking account of the Transit earnout. Coast Capital’s analysis incorrectly uses inconsistent foreign exchange rates to compare balance sheet information and transaction values, and fails to adjust for cash that will be retained by FirstGroup. Based on the net asset values adjusting for net intercompany balances of £2,512m in the circular, which were translated at $1.27:£1 and adjusting for cash of £166m retained by FirstGroup, the transaction value including the First Transit earnout is 1.1x, or 3.3x excluding goodwill of £1,550m.

Peer comparisons

The EV/EBITDA transaction multiple for STA noted by Coast Capital is not comparable to the First Student and First Transit Sale because STA had a business model with a majority leased fleet resulting in a materially lower EBITDA compared with First Student's predominantly owned fleet.

Coast Capital's comparison to other transactions also fails to recognise that FirstGroup’s book value includes $2.0bn of goodwill.

On reviewing the National Express plc trading multiple as at 1 March 2020 pre-COVID, FirstGroup has concluded that the implied EV/EBITDA multiple of their US school bus and transit business is 6.7x[i], materially lower than the multiple achieved by FirstGroup on the Sale. 

David Martin, FirstGroup Chairman, said:

"Shareholders have waited long enough for change, and this credible and executable transaction is a transformational opportunity for the Group to progress to a new and exciting phase of its development. When I joined the Board in August 2019, I clearly stated my objective was to unlock the value within the Group. Following a full strategic review, we undertook a comprehensive and well-publicised sale process, which achieves a full value and enables the Group to return value to shareholders, address its legacy challenges and strengthen its position for the future."

Contacts at FirstGroup:

Faisal Tabbah, Head of Investor Relations
Stuart Butchers, Group Head of Communications
corporate.comms@firstgroup.com
+44 (0) 20 7725 3354

Contacts at Brunswick PR:

Andrew Porter / Simone Selzer, Tel: +44 (0) 20 7404 5959

Legal Entity Identifier (LEI): 549300DEJZCPWA4HKM93. Classification as per DTR 6 Annex 1R: 3.1.

About FirstGroup

FirstGroup plc (LSE: FGP.L) is a leading provider of transport services in the UK and North America. With £7.8bn in revenue in the year to 31 March 2020 and around 100,000 employees, we transported 2.1bn passengers. Whether for business, education, health, social or recreation – we get our customers where they want to be, when they want to be there. We create solutions that reduce complexity, making travel smoother and life easier. We provide easy and convenient mobility, improving quality of life by connecting people and communities. Visit our website at www.firstgroupplc.com and follow us @firstgroupplc on Twitter.

[i] 6.7x is derived from the National Express 2019 financial statements and assumes the Coast Capital multiple of 7x EV/EBITDA for the non-US businesses.