Lisboa OCC

INTERNATIONAL: Hitachi Rail has agreed to acquire Thales’ Ground Transportation Systems division, with the aim of positioning itself as a global leader in the signalling market and strengthening its position as provider of turnkey railway systems.

The deal announced on August 4 has an enterprise value of €1·66bn, corresponding to an implied valuation of 13·8 times EV/EBIT, based on reported H2 2020-H1 2021 EBIT, although the final purchase price will be subject to customary adjustments. The transaction is expected to close in late 2022 or early 2023, subject to regulatory clearances, with Hitachi saying it would ‘promote the conditions for a smooth and successful integration’, and was ‘willing to take a number of social commitments’.

Global growth

GTS has four business segments: main line railway signalling, urban rail signalling, integrated communications and revenue collection systems. The business generated revenues of €1·6bn in FY2020, and has around 9 000 employees across 42 countries with headquarters in Germany, France and Canada.

Hitachi Rail said the acquisition would build on its existing presence in Japan, Italy, UK and the USA to grow its signalling activities globally. The deal would also reinforce its core business as a turnkey provider of integrated rolling stock, signalling, maintenance and digital technology.

GTS’s digital expertise is expected to accelerate Hitachi Rail’s Mobility as a Service offering, while the Green Speed connected driver advisory system would help to cut train energy consumption in support of Hitachi Ltd’s environmental targets. These include carbon neutrality at all its sites by 2030 and an 80% reduction in CO2 emissions across its value chain by 2050.

Kobenhavn metro (Photo Hitachi)

Hitachi said run-rate synergies in excess of €100m per year would be achievable in four years, benefiting from greater scale, cross-selling to a wider global customer base, more cost-competitive procurement, optimised engineering capabilities and enhanced production. Thales said GTS employees would also have enhanced professional opportunities.

Hitachi Rail anticipates that it could potentially reach €7·7bn in revenue and double-digit adjusted operating income ratio by FY2026.

‘Today’s announcement marks an exciting opportunity for the teams at Hitachi Rail and Thales’ Ground Transportation Systems business to create new value for our customers, cities and passengers around the world’, said Hitachi Rail CEO Andrew Barr. ‘Not only will we grow the reach of our core signalling capabilities as part of our turnkey offering, but we are also bringing together our digital and Mobility as a Service capabilities. The strong teams, customer relationships and technologies at GTS will help us grow to become a major player’.

Thales said the sale of GTS formed part of a strategic focus on aerospace, defence & security and digital identity & security.

‘After discussions with key market players, Thales has selected the best industrial partner to ensure a successful long term development of its ground transportation business’, said Philippe Keryer, EVP Strategy, Research & Technology. ‘This move is creating significant value for our clients, employees and shareholders and enables GTS to be at the forefront of growth in sustainable mobility.’

Deutsche Bank and Perella Weinberg Partners acted as financial advisers to Hitachi, and Clifford Chance as legal adviser. Lazard acted as financial adviser to Thales, and BDGS, Baker McKenzie and August Debouzy acted as legal advisers.

Thales’ Ground Transport Systems business
Segment FY20 revenue Products
Main Line Signalling 50% Train control, traffic management, digitalisation, equipment control, route control
Urban Rail Signalling 20% CBTC, route control systems, services
Integrated Communication Systems 20% Operation control, video & security, passenger mobility, adaptive connectivity, predictive maintenance, tram & LRT signalling
Revenue Collection Systems 10% Fare management, parking and traffic management, road tolling