Smaller Companies: All aboard for the big bus ride

AMID the deluge of flotations on the Stock Exchange a new mini-sector is forming. Last week a company called Go Ahead announced plans to add its name to the small but growing number of quoted bus companies.

Go Ahead, based in Tyne and Wear, will join Badgerline, Stagecoach and GRT as a fully listed company. Other outfits are also believed to be grooming themselves for public life.

In addition, the sector is set to be revolutionised as the 10 concerns responsible for running London's famous red buses are auctioned off.

It has taken the best part of 10 years for the regional operators to gear up for public life. The Transport Act of 1985 allowed local authorities to relieve themselves of the responsibility for operating buses.

Many services did not survive deregulation. But where profits were spotted the private sector moved in. In the decade since, private sector operators have been trying to establish themselves as viable companies and demonstrate a suitably profitable financial record.

London companies that have listing ambitions, however, are likely to gravitate toward the Stock Exchange much more quickly. This is mostly because these outfits are in better shape and, while they have not been privately owned, they have been managed along privatised lines.

But it is not inevitable that all 10 London companies, and the countless other regional operators, will lead independent lives as quoted companies.

Those that are already quoted or are seeking a listing have distinctly predatory ambitions. Martin Ballinger, managing director of Go Ahead, said: 'We need the money from the flotation to extinguish debt. But we also need the quote to make us able to bid for any of the London companies - or any other companies for that matter.'

Go Ahead has already demonstrated itself as an aggressive acquisitor and empire builder. In the past year it has expanded away from its home base in the North-east and bought operators in Oxford and Brighton. Mr Ballinger wants the company to double in size during the next 12 months.

The London companies between them form the largest bloc in the bus industry, with a 25 per cent market share. Badgerline is currently the largest single company, with 12 per cent, just ahead of Perth- based Stagecoach. Go Ahead has 3 per cent. But consolidation will come.

But Mr Ballinger realises that rival companies also have growth ambitions. 'Six big groups will emerge to dominate what has been a highly fragmented industry,' he said. 'We will be one of them.'

Analysts concur. It will be a hectic two years on the buses as merger mania follows flotation fever.

The attraction for investors is that the competent managers will mop up inefficient rivals and, in theory, squeeze out handsome profits.

Shares in Stagecoach have appreciated in value by 75 per cent since coming to the market last April, outperforming the market average by more than 50 per cent.

Expect blossoming interest in quoted bus companies as investors scramble to get aboard.

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