Japan’s Sojitz may be frontrunner for UGL’s $1bn transport division

UGL’s transport division has built more than 11,000 locomotive wagons and maintained 3000 rail passenger cars, with state governments as its primary clients. Picture: iStock

Japanese groups are understood to have been eyeing up the $1bn transport division of UGL, including Sojitz Corporation, which may be one of the final contenders for the ACS-controlled business.

Final bids were due to have been received this month, and sources say that the sale process remains ongoing.

Sojitz could still be competing along with private equity suitors, say sources.

Platinum Equity has taken a look at the business, but is not known for paying up for assets.

Japan’s Sojitz is a general trading company that sources say has been looking at targets in Australia of late and operates in a broad range of sectors, including transport and infrastructure, with a heavy involvement in the train and rail industry.

It purchased Capella Capital Partnership from Lendlease this year for $470m – a business heavily involved in public-private partnerships.

Capella led large-scale development projects including hospital, road, light rail transit and subway projects in the energy, social and transportation infrastructure sectors.

Sojitz has surfaced as a party linked to the UGL operation after industrial heavyweights Service Stream and Ventia both withdrew from the auction early on.

Earlier some thought a private equity firm could be the most logical buyer.

Macquarie Capital is managing the sale process that was first revealed by DataRoom in July.

The transport unit, owned by CIMIC Group through its Spanish parent ACS, generates approximately $1.5bn in annual revenue and more than $100m in earnings.

Market estimates suggest it could have fetched five to six times earnings. UGL’s transport division has built more than 11,000 locomotive wagons and maintained 3000 rail passenger cars, with state governments as its primary clients.

The business manufactures buses, maintains rail infrastructure and oversees public transport services across five major cities including Melbourne, Sydney, Canberra, Adelaide and Auckland.

While the division ranks second to market leader Downer, it has delivered strong profitability for CIMIC.

However, private equity buyers may be deterred by lower margins compared with other investment opportunities.

ACS faces pressure to reduce debt and recycle capital, with CIMIC also grappling with costly claims on building projects.

ACS reported net debt of €2.8bn ($4.99bn) in March, despite generating €827.6m in annual profit for 2024.

CIMIC acquired UGL in 2016 for $524m following a takeover battle for the then-ASX-listed engineering services provider.

UGL positions itself as Australia’s only contractor offering in-house design, construction, commissioning and maintenance services across both road and rail networks.