Stagecoach Holdings plc
Stagecoach Holdings plc
Sales: £1.55 billion (US$2.49 billion) (1999)
Stock Exchanges: London
Ticker Symbol: SGC.L
NAIC: 485113 Bus Services, Urban & Suburban; 485210 Bus Line Operation, Intercity; 487110 Buses, Scenic & Sightseeing Operation; 48551 Charter Bus Industry; 482111 Passenger Railways, Line-Haul
Stagecoach Holdings plc has ridden the deregulation of the United Kingdom’s bus and rail routes to become one of the country’s leading public transportation providers. Led by Chairman (and cofounder with sister Ann Gloag) Brian Souter and CEO Mike Kinski, Stagecoach has pursued an aggressive expansion-by-acquisition policy, helping to consolidate the British transportation market. But Perth, Scotland-based Stagecoach has also launched itself on the international scene, where it holds prominent positions in Sweden, Australia, New Zealand, Finland, Italy, Portugal, and—through the 1999 acquisition of Coach USA, a leading transport provider based in Texas—the United States. Stagecoach has also entered the Hong Kong and Chinese transportation markets through a position in Road King Infrastructure of Hong Kong and operations of Hong Kong’s Citybus franchise. In total the company and its 30 subsidiaries run a fleet of more than 12,000 buses and other vehicles. Stagecoach has also diversified into other transport sectors, including the U.K. rail franchise South West Trains; the acquisition of train leasing company Porterhouse; and a 49 percent position in Virgin Rail, the railroad company set up by Virgin Records magnate Richard Branson. Stagecoach also owns an airport—Scotland’s Prestwick Airport. Stagecoach’s acquisition of Coach USA gives it a major foothold in the estimated US$40 billion public and school bus markets.
Rags-to-Riches in the 1980s
Ann Gloag and younger brother Brian Souter grew up in Perth, Scotland’s council flats (the equivalent of the United States’ housing projects). The Souters’ father was a driver for the local community’s bus lines. Buses played a large role in the Souters’ lives. Brian Souter would later recall playing with buses on the floor of the family’s home. As Ann Gloag—who had already made a 20-year career as a nurse before founding Stagecoach—said, as related by Time International: “Buses were what the family knew. My father, my husband and my brother had all worked on them.”
The rise of the Thatcher era spelled a wave of deregulation and privatization of industries that had formerly been government controlled. Among the first industries to be privatized was the public transportation sector, and specifically the United Kingdom’s bus routes. Gloag and Souter were quick to recognize the potential of this newly opening market. In 1980, using their father’s £25,000 severance paycheck, Gloag and Souter bought two small buses. Just days after the bus line deregulation was enacted, the brother-sister team were ready to begin operations. They called their company Stagecoach, and offered redline service between Dundee and London.
Stagecoach was not the only new bus operator to ply the United Kingdom’s roads. But the brother-sister team hit upon a service formula that kept customers coming back: offering sandwiches (prepared by their mother), blankets, and tea, while also charging lower fares than their competitors. Soon after the company started operations, it was able to add a second route, between Glasgow and London. By the mid-1980s, Stagecoach operated along a growing number of Scotland’s roadways.
If privatization had opened the way for Stagecoach, the deregulation of the busing industry in the middle of the decade brought the company its greatest opportunities. The breakup of the formerly government-run National Bus Company into its regional subsidiaries created 70 independent bus companies, which were generally sold to their management. While content to be government employees, many of the new bus line owners were uncomfortable in this position, or were otherwise eager to cash in on the growing interest in private bus companies.
Stagecoach was quick to recognize the potential opportunity of the National Bus Company breakup: Souter and Gloag embarked on their own acquisition tour, making nearly 40 acquisitions between 1985 and 1999. Among the first acquisitions were those of Cumberland Motor Services and United Counties Omnibus, both made in 1987 and both counted among the company’s largest purchases. The fast-growing company continued to stretch its holdings throughout the United Kingdom. In 1989, Stagecoach took another leap forward when it bought East Midland Motor Services. At the same time, the company became one of the first bus lines to operate a global strategy: in 1989, the company entered Africa, buying a 51 percent stake in United Transport of Malawi. Further African expansion followed with the purchase of Kenya Bus Services in 1991.
The company’s strategy proved simple and highly effective. New acquisitions were placed through rigorous cost-cutting measures, including drastic reductions in management levels as the subsidiary operations were placed under parent Stagecoach’s control. The company was also careful to position its own people in key management positions, assuring a cohesive strategy. The company’s acquisition drive itself helped improve profit margins, as the company began to realize economies of scale. Stagecoach also made shrewd use of the real estate acquired through its acquisitions. Many of the former National Bus Company regional subsidiaries had operated from depots and offices in downtown locations. Stagecoach quickly sold off these valuable properties, moving operations to less expensive locations. With the cash gained, the company was able to return to the acquisition trail.
At the same time as Souter and Gloag were buying up the United Kingdom’s bus routes, they were careful not to neglect passengers. Bus lines added to the Stagecoach family were quick to see fare reductions—often drastically undercutting their rivals, and even operating for limited times for free. These practices, which included hiring away conductors from other local companies, were to bring negative repercussions to the company as it rapidly became one of the largest players on the U.K.’s public transport scene. Under frequent investigation by the country’s Monopolies and Mergers Commission, Stagecoach was found to have acted, at least in one instance, in a manner that was “predatory, deplorable and against the public interest.” Yet, in the deregulated, highly competitive public transportation market, none of Stagecoach’s activities were illegal.
Moreover, for whatever aggressiveness Stagecoach brought to bear on its rivals, the company was careful to treat its passengers well. When a bus company was added to the Stagecoach stable, its fleet was usually outfitted with an array of new buses, allowing Stagecoach to claim one of the youngest bus fleets in the country. Apart from lower fares, Stagecoach also added other services (although the hot tea and sandwiches seemed to have fallen by the wayside). As its network of bus companies grew, the company began innovating with hub-and-spoke style express coach services, which were much appreciated by the company’s passengers. Stagecoach also began operating open-top buses on some of the company’s more scenic commuter routes; these buses proved popular with passengers, both commuters and sightseers alike. In addition, where other companies avoided sparsely populated—and expensive—rural routes, Stagecoach began introducing new routes. But these were quick to provide linkups into the company’s other lines, bringing yet more passengers on board.
“Public” Public Transport in the 1990s
Stagecoach continued its acquisition drive into the 1990s, buying up more and more bus lines staggering with the economic recession. Among its early 1990s purchases were two prominent Scottish bus operators, Fife Scottish and Bluebird Buses, acquired in 1991. The following year, Stagecoach formed its Stagecoach South subsidiary, combining a number of its southern England operations into a single, cost-effective entity. The company made a similar move in western England, after buying up Western Travel in 1993. This operation was renamed Stagecoach West. Meantime, Stagecoach moved to a new continent, with the purchase of New Zealand’s Wellington City Transport. Through the rest of the decade, Stagecoach continued to build its position, both in New Zealand and in Australia, making it a prominent player in that region.
The year 1993 also marked a new milestone for Stagecoach. Having reached annual sales of £100 million, the company went public, taking a listing on the London stock exchange. The listing made millionaires out of Souter and Gloag, who soon numbered in the country’s top 100 wealthiest people. Access to new capital enabled Stagecoach to continue its growth-by-acquisition campaign. The deregulation of the London bus industry opened the country’s most important market: Stagecoach established its presence with two key purchases, those of the South East London & Kent Bus Company Ltd. (Selkent) and East London lines, in 1994. In that same year, Stagecoach strengthened its position in the northern regions of Scotland and England, making a number of important acquisitions.
The company was well on its way to becoming the leading coach bus operator in the United Kingdom. Additional lines in Cambridge in 1995, and in Exeter and Manchester in 1996, firmly established the company’s leadership position. But Stagecoach was also boosting its foreign position, first with the start-up operation of Portugal’s Rodoviaria Lisboa in 1995, and then with the £230 million purchase of the formerly state-run Swedish bus operator, Swebus, in 1996. That purchase, the company’s largest to date, forecasted Stagecoach’s future expansion on the European continent, as more and more countries studied privatization of their bus routes.
Stagecoach aims to provide long-term shareholder value by creating a global transport business, focused on innovation and quality, which benefits both our customers and employees.
By 1996 Stagecoach had swelled to annual revenues of more than £1 billion per year, with operations in nine countries, and a 17 percent share of the United Kingdom’s bus market. With acquisition opportunities becoming rare in the U.K. bus sector—and with large-scale purchases likely to bring the company fresh difficulties with the Monopolies and Mergers Commission—Souter and Gloag now looked to diversify their operations. The privatization of the country’s train system opened up a new route to Stagecoach. In 1996 the company bought the rights to operate South West Trains (SWT), which enabled the company to offer bus-rail linkup services to its southern region and London operations. In the same year, Stagecoach paid £825 million for Porterbrook, a rolling stock leasing company which owned some 30 percent of the country’s passenger railroad vehicles.
By 1997 Stagecoach’s operations of SWT were being called into question, as the company faced a high rate of daily cancellations and continued passenger dissatisfaction. While the company pledged to turn operations around, Stagecoach nevertheless found itself threatened with the loss of the SWT franchise and the possibility of fines for substandard services reaching into the millions of pounds. Stagecoach was also chafing under shrinking expansion possibilities in the United Kingdom. As Souter told Investor’s Chronicle in 1997: “We don’t intend to make any more U.K. acquisitions. The U.K. has moved very quickly. We got in early when there was still a bob in it. But we want value for shareholders and are getting out of a market that is overpriced.”
Stagecoach’s U.K. railroad ambitions were also being thwarted, when it lost its bid to operate the West Coast Mainline and ScotRail railroads, which went to National Express and Virgin Rail. In response, in 1998 Stagecoach turned to new sectors for development. After losing a bid to chief U.K. competitor FirstGroup to run Hong Kong’s main bus franchise, Stagecoach nonetheless found entry into the rapidly developing Chinese market. In 1998 the company made the surprise purchase of a 22 percent stake in Road King Infrastructure, a Hong Kong-based toll road builder, with operations chiefly on the Chinese mainland. The following year, Stagecoach achieved its ambition, when it took over operations of Hong Kong’s Citybus operations, which, with 1,200 buses and more than 4,000 employees, gave Stagecoach the number two position in the city’s bus market. Meanwhile, the company was preparing to abandon its money-losing operations on the African continent. When Ann Gloag stepped down from day-to-day operations, the company hired Mike Kinski as CEO.
Stagecoach took another turn in 1998, when it purchased, for £41 million, Scotland’s Prestwick Airport. This acquisition looked to be short-lived, however; by the summer of 1999, the company was rumored to have been offered some £80 million for Prestwick. Stagecoach’s flagging interest in airports quickly found an explanation: in June 1999, the company announced its intention to acquire Coach USA, the largest passenger coach service in the United States.
Based in Houston, Texas, Coach USA had taken an early lead in consolidating the charter and tour bus industry in the United States. Founded by venture capitalist Steven Harter in 1995, and run by CEO Lawrence King, Coach had rapidly built a fleet of some 3,500 sightseeing buses, as well as an equal number of taxis and other vehicles. After going public in 1996, the company went on a buying spree, making more than 50 acquisitions across the country, with particular emphasis on Texas, Florida, and the Midwestern and Eastern regions. By the time Coach entered into talks with Stagecoach, the U.S. company was posting revenues of more than US$800 million. The acquisition agreement with Stagecoach, which left King in place as the head of the U.S. operation, cost the U.K. operator more than US$1.8 billion, including the assumption of some $600 million in Coach’s acquisition-induced debt.
National Transport Tokens Ltd.; Al Service Ltd.; AA Buses Ltd.; Circle Line Coach & Omnibus Ltd.; Magic Bus; Stagecoach Bluebird, Stagecoach Burnley & Pendle; Stagecoach Bus ways; Stagecoach Cambus; Stagecoach Cheltenham District; Stagecoach Cirencester; Stagecoach Coastline Buses; Stagecoach Cumberland; Lakeland Experience; Coachline; Stagecoach Darlington; Stagecoach Devon Ltd.; Stagecoach Devon Ltd.; Stagecoach East Kent; Stagecoach East London; Stagecoach East Midland; Stagecoach Fife Buses; Stagecoach Glasgow Ltd.; Stagecoach Gloucester Citybus; Stagecoach Graphics Ltd.; Stagecoach Grimsby Cleethorpes; Stagecoach Hampshire Bus; Stagecoach Hants & Surrey; Stagecoach Hartlepool; Stagecoach Kingston upon Hull; Stagecoach Lancaster; Stagecoach London Ltd.; Stagecoach Manchester; Stagecoach Midland Red; Stagecoach; Selkent (South East London & Kent Bus Company Ltd.); Stagecoach (South) Ltd.; Stagecoach South Coast Buses; Stagecoach Stroud Valleys; Stagecoach Swindon & District; Stagecoach Transit; Stagecoach United Counties; Stagecoach Viscount; Stagecoach West Ltd.; Stagecoach Western Buses; Sussex Bus Ltd.; Island Line Ltd.; Porterbrook Leasing Company Ltd.; South West Trains Ltd.; Stagecoach Supertram; Stagecoach Aviation Group Ltd.; Glasgow Prestwick International Airport Ltd.; Stagecoach Australia Pty Ltd.; Stagecoach New Zealand; Stagecoach Wellington; Fullers Group Ltd.; Stagecoach Portugal; Swebus AB; Stagecoach Finland Oy Ab; Citybus Ltd. (Stagecoach Asia Ltd. subsidiary); Coach USA, Inc.; Road King Infrastructure Ltd. (22%); Virgin Rail Group (49%); Kwoon Chung Buses (25%); Sita Buses (Sogin-Gruppo Fs) (35%).
Flanagan, Martin, “A Cultural Revolution in Buses,” Scotsman, March 20, 1999.
Gibson, Helen, “Boom Times for Buses,” Time International, October 21, 1996, p. 52.
Harrison, Michael, “Bus Firm That Took the Fast Route to Trouble,” Independent, March 15, 1997, p. 10.
Nag, Arindam, “Britain’s Stagecoach Buys Ticket to Ride US Market,” Reuter’s Business Report, June 14, 1999.
Stevenson, Tom, “Stagecoach Offers an Exciting Ride,” Independent, October 10, 1996, p. 26.
Yates, Andrew, “Souter Eyes Wider Stage,” Investor’s Chronicle, February 14, 1997.
—M. L. Cohen