December 14, 2019

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Doubling down

New Flyer buys U.K. double-decker bus maker in $545M deal

Hey there, time traveller!
This article was published 28/5/2019 (199 days ago), so information in it may no longer be current.

NFI Group (formerly New Flyer Industries) has bought the U.K. double-decker bus maker, Alexander Dennis Ltd.. for $545 million making the Winnipeg company the leading independent bus maker in the world.

Scotland-based ADL is the largest manufacturer of double-deck buses in the world and has a commanding share of the U.K. market and also has double digit market share in Hong Kong and Singapore, as well as sales in a handful of European countries, New Zealand, Mexico, Canada and the U.S. The company also makes single deck transit buses as well as a motor coach under the brand Plaxton.

In the last couple of years it has won significant contracts in Poland, Switzerland and Germany, where it is just starting to build for a contract for 430 buses.

Officials from the Winnipeg bus company said the acquisition of ADL will add to its bottom line almost immediately and will not impact the dividends it pays shareholders.

Last year, ADL had sales totalling $1.1 billion giving NFI Group Inc. pro forma annual revenue of $4.45 billion.

NFI Inc. (formerly New Flyer Industries) has acquired British double-decker bus maker Alexander Dennis.


NFI Inc. (formerly New Flyer Industries) has acquired British double-decker bus maker Alexander Dennis.

NFI has already had a relationship with the U.K. company with a joint venture to build and sell a small design bus into the North American market. Although that product, called the MIDI bus, was ultimately not successful and the joint venture ended in 2017 a connection was obviously formed.

The U.K. company has had compounded annual growth rate of 10.5 per cent over the past few years, a growth rate that has been accomplished at least partially by the company's successful entry into an increasing number of new markets sometimes using different supply chains and sometimes partnering with third party manufacturers in the actual fabrication. (For instance in some Asian markets it sources chasis from Malaysia other parts from elsewhere and the final assembly takes place in China.)

NFI Chief executive officer Paul Soubry said, "One of the things we really liked about ADL is its flexible operational model. It has allowed them to successfully develop new products quickly, enter new markets and establish local sourcing and assembly partnerships."

The fact that ADL already sells into North America – albeit less than 200 units compared to the 4,500 units NFI sells – and has two production facilities in North America, the addition of ADL's double-deck model will add to the portfolio of products NFI can sell to its customer base here.

NFI paid for the company using existing credit facility as well as a new credit facility and will also issue 1.4 million shares. While that adds to NFI's debt burden, officials said that it will be able to be reduced to a more comfortable level in less than two years.

Key numbers for Alexander Dennis Limited

Click to Expand

Number of employees — 2,587

Buses in service — 31,600

Assembly facilities — Scotland (three), England (one), U.S. (one), Canada (one)

Service and parts distribution locations — England (three), New Zealand (one), Singapore (one), Malaysia (one), Canada (one), U.S. (one)

Units Sold in 2018 — 2,533

Revenue 2018 — $1.1 billion

Although in many cases when companies combine the so-called "synergies" often mean the elimination of activities and jobs in one or the other operation. But Soubry said in this case, the two companies will be looking for synergies up and down their various operations.

"The business case in this deal is around going somewhere together as opposed to cost cutting or reductions," Soubry said in a telephone interview from ADL's headquarters in Larbert, in central Scotland. "We can work together to grow globally not just in North America. The synergies could be in the supply chains — what we buy, what ADL buys — maybe some fabrication issues. We are very well vertically-integrated, ADL is not. Maybe there are some things that, for instance, our parts plant in Kentucky can make for them."

Although NFI's share price has fallen by more than 35 per cent this year much of it can be attributed to minor slips and missed targets but the fundamentals of NFI's business have remained solid and some analysts are still targeting for the stock price to gain back all it lost in the next 12 months.

Tuesday's announcement spurred on the busiest trading day in some time for NFI, with the stock up 3.5 per cent.

Cameron Doerksen, an analyst with National Bank Financial, said he liked the deal for several reasons including that it stays true to what NFI know best — the bus market "where best practices in manufacturing and product development and engineering expertise can be shared."

Colin Robertson, CEO of Alexander Dennis (left) and Paul Soubry , CEO of NFI.


Colin Robertson, CEO of Alexander Dennis (left) and Paul Soubry , CEO of NFI.

NFI's share price tumble has taken place even though it's dominating market share in North America has only come down slightly.

In a note to his customers, Doerksen said, "One of the investor critiques of NFI has been its lack of organic growth and we believe ADL’s geographic footprint will allow NFI to penetrate and grow in other markets. For instance, in late 2018, ADL won a contract for up to 430 double-deck buses for the city of Berlin. In Asia-Pacific, ADL is the market leader in Hong Kong and is growing share in New Zealand."

Among other things that NFI will be learning from ADL is selling buses into the private sector. In the U.K. many transit systems and routes are run by private operators as opposed to the public sector systems that exist in North America and 84 per cent of ADL's sales are into that transit market.

Martin Cash

Martin Cash

Martin Cash has been writing a column and business news at the Free Press since 1989. Over those years he’s written through a number of business cycles and the rise and fall (and rise) in fortunes of many local businesses.

Read full biography


Updated on Tuesday, May 28, 2019 at 7:34 PM CDT: Fixes typos

7:53 PM: Fixes more typos.

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