North America-based bus manufacturer NFI Group Inc. has acquired UK-based bus manufacturer Alexander Dennis Limited (ADL) for a total transaction value of £320 million (US$405 million) on a cash-free, debt-free basis, subject to certain adjustments. The combined business creates an independent global bus OEM with market-leading positions in the United Kingdom, Hong Kong, North America and a growing footprint in Asia Pacific, Latin America and Europe.
NFI is North America’s largest and most diversified bus and coach manufacturer providing solutions under the brands New Flyer, MCI, ARBOC and NFI Parts. Tracing its roots back to 1930, NFI has more than 74,000 vehicles in service in Canada and the United States.
ADL is one of the world’s leading independent bus and coach manufacturers and the number one global producer of double-deck buses. With a history spanning more than a century, ADL has more than 31,000 vehicles in service in the UK, Europe, Hong Kong, Singapore, New Zealand, Mexico, Canada and the United States sold under the Alexander Dennis and Plaxton brands.
This is a transformational acquisition for NFI to become a global bus manufacturer. ADL is the UK’s number one bus manufacturer and the number one global producer of double deck buses, with an established international presence and is recognized as a leader known for innovative products and a commitment to quality and service. We’re thrilled to have ADL join the NFI family in a transaction that we believe will drive our business forward by combining joint strengths in engineering, sales, new product development and manufacturing with NFI’s expertise in Operational Excellence, insourcing, fabrication and systems management.—Paul Soubry, NFI’s President and CEO
The transaction presents a number of attractive opportunities for NFI, including:
Market Leadership, International Diversification and a Growth Platform for NFI: ADL is the number one global producer of double deck buses with an established presence across multiple continents, more than 50% market share in the UK, and a growing presence in continental Europe, Asia Pacific and North America. ADL’s recent contract win in Berlin, Germany provides a platform for further European expansion while its existing presence in Mexico establishes a model for further Latin American growth.
Enhanced Product Portfolio: ADL adds to NFI’s product portfolio through its class-leading, internationally proven line-up of single- and double-deck buses, and motor coaches. ADL enhances NFI’s technical competencies on lightweight chassis and bodies. NFI’s electric vehicle (EV) experience will enhance ADL’s international EV offering and ensure both companies drive the future of clean transportation. The combined NFI and ADL business creates the strongest customer offering in North America with the widest range of buses and aftermarket support.
Cost Effective Platform: ADL’s flexible operating model enables the business to enhance competitiveness in existing markets while entering new regions. ADL successfully operates in highly competitive markets through its ability to effectively and efficiently develop innovative new products, leverage local sourcing, create flexible assembly partnerships and establish dedicated aftermarket service.
Financially Compelling: The transaction is expected to be immediately accretive (before potential synergies) to both earnings per share and free cash flow per share. NFI expects the combined financial results will enable us to de-lever quickly and return to our target of 2.0x to 2.5x total debt to EBITDA within approximately 18 months of closing without impact on the Company’s dividend policy. NFI expects to capture synergies over time and to capitalize on further growth opportunities through a combined approach. The combined NFI and ADL business will explore North American manufacturing, sales, service, and supply chain optimization as well as part fabrication opportunities that may provide additional benefits over time.
Strong Cultural Fit with Commitment to Safety and the Environment: Through NFI’s longstanding dialogue and prior joint venture with ADL, it became clear that the two companies shared similar cultures and values regarding quality and customer experience. Further, there is a clear alignment with management strategy, market outlook, and EV adoption expectations which should allow for a smooth transition. ADL’s management team remains in place to drive performance and international growth.
NFI has entered into an agreement with Colin Robertson, ADL’s Chief Executive Officer, and Michael Stewart, ADL’s Chief Financial Officer, to continue leading ADL. They will also be tasked with leading NFI’s international growth ambitions.
ADL’s primary shareholders along with Robertson and Stewart have elected to roll approximately 10% of their transaction consideration into NFI shares ensuring strong ongoing alignment with NFI’s existing shareholders.
The transaction, including related expenses, is being funded through NFI’s existing credit facility capacity, a new US$300-million credit facility with substantially the same terms as the existing credit facility, and the issuance, from treasury, of 1.47 million NFI common shares, in lieu of cash, to certain primary ADL shareholders, representing approximately 2% of NFI’s outstanding shares following completion of the transaction.
At close of the transaction, NFI drew an aggregate of approximately US$420 million on its credit facilities, resulting in pro forma total debt to pro forma Adjusted EBITDA as of 30 December 2018 of approximately 2.9x.
BMO Capital Markets and HSBC Securities (Canada) Inc. acted as financial advisors and Torys LLP and Eversheds Sutherland (International) LLP acted as legal counsel to NFI in connection with the transaction. BMO Capital Markets and HSBC Bank Canada acted as co-lead arrangers and joint-bookrunners on the new credit facility.