The $2 billion listed SeaLink Travel Group is expected to line up as a buyer of Ritchies buses in New Zealand, after it snapped up Australian bus operator Transit Systems Group for $635 million more than a year ago.
Macquarie Group analysts suggest in a research note that the company has an interest in mergers and acquisitions across the Tasman, as bus company Ritchies is reportedly for sale through Cameron Partners. It is estimated to be worth about $500m.
Macquarie analysts say the New Zealand bus market is about 20 per cent the size of Australia’s and the major operators are Ritchies, as well as NZ Bus and Go Bus, in an otherwise fragmented market.
Analysts say that as well as New Zealand, mergers and acquisitions have also been flagged in the United States, with a board investment working group established in last year.
“We view M & A in New Zealand more likely in the near to medium term,” the analysts from Macquarie said in a research note.
Ritchies is a key operator with a 23 per cent market share and is family-owned.
It is 34 per of the size of Transit Systems, which is Australia’s largest private operator of metropolitan public bus services and an operator of buses in London and Singapore.
When SeaLink purchased Transit, it also announced that the company’s chief executive Clint Feuerherdt would replace former boss Jeff Ellison.
The deal added to SeaLink’s existing tourism business which includes cruises, ferry and charter services on the Sydney Harbour, Swan River and Murray River, and resort accommodation and day tours at tourism attractions including Kangaroo Island in South Australia and Fraser Island and Magnetic Island in Queensland.
NZ Bus and Go Bus are owned by private equity and the analysts assume Go Bus is the same size to Ritchies.
The earnings before interest, tax, depreciation and amortisation margins for such players range from 15 per cent to 25 per cent versus Transit Systems, which has a margin of about 10 per cent.
The analysts believe that the possibility of M & A, along with four contract wins in Sydney and Melbourne, improves the company’s valuation by about 13 per cent to 9.5 times EBITDA including debt for the 2023 financial year.
Mergers and acquisition activity in New Zealand would also provide the scope to consolidate smaller participants in time, analysts say.
For the six months to December, SeaLink delivered $570.8m of revenue and net profit of $48.1m.
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