Mobico Group to sell North America School Bus Business to I Squared Capital in $608m deal

Why is Mobico Selling Its North America School Bus Business to I Squared Capital?

Mobico Group PLC announced a major strategic milestone by agreeing to sell its North America School Bus division to global infrastructure investment manager I Squared Capital for an enterprise value of up to $608 million. The deal, which includes an earn-out component tied to future performance, is expected to close in early Q3 2025, subject to regulatory and antitrust approvals.

The sale represents a critical turning point for Mobico Group, previously known as National Express Group. The company emphasized that the disposal would accelerate its net debt reduction and strengthen its financial flexibility, allowing greater focus on high-growth opportunities, particularly in its ALSA business, which operates across Europe and North Africa.

Mobico’s decision stems from a detailed strategic review initiated in October 2023. During that period, the company determined that the North America School Bus unit, while operationally recovering post-pandemic, remained capital-intensive and faced persistent challenges, including driver shortages, wage inflation, and emerging fleet cost pressures tied to global tariffs.

Group Chief Executive Ignacio Garat stated that this agreement is pivotal for Mobico’s future direction, enabling a shift of resources away from a capital-heavy division toward initiatives that promise stronger free cash flows and superior returns. He noted that I Squared Capital’s experience in infrastructure investments positioned it as an ideal new owner to support the continued growth of the School Bus operation.

What Are the Key Financial Details of the Mobico-I Squared Capital Transaction?

The enterprise value of up to $608 million, roughly £457 million at the prevailing exchange rate of 1.33 GBP/USD, reflects a multiple of approximately 50 times School Bus’s expected FY24 Adjusted Operating Profit of $11.5 million, and around 5.0 times its expected FY24 Adjusted EBITDA of $122 million (5.6 times excluding IFRS 16 lease accounting impacts).

Mobico anticipates upfront net proceeds between $365 million and $385 million after deductions related to transaction costs, lease liabilities, deferred capital expenditure, and debt-like items. Notably, these proceeds exclude the additional potential $70 million earn-out tied to post-transaction performance targets.

The sale will also enable a further $38 million reduction in reported net debt through the elimination of associated IFRS 16 lease liabilities. After repaying about $75 million of non-IFRS 16 leases, Mobico plans to retain the balance in cash to bolster its financial position.

How Will This Sale Reshape Mobico’s Strategic Focus?

This strategic exit allows Mobico to prioritize deleveraging efforts while simultaneously enabling investment into its core growth businesses, especially ALSA. The company highlighted that over £200 million in capital had been invested into the School Bus segment over 2022–2024, with relatively modest cash flow returns.

By exiting this capital-intensive sector, Mobico simplifies its portfolio and reduces exposure to operational risks such as driver wage inflation and supply chain volatility. The School Bus business, while achieving a positive route outcome for the 2024 school year — its first in more than a decade — still faced headwinds that constrained cash flow generation.

In contrast, Mobico’s ALSA division has consistently demonstrated strong operational momentum, winning critical transport contracts across Spain, Morocco, and other markets. By reallocating capital toward ALSA and similar divisions, Mobico expects to generate higher, more predictable returns and to meet its medium-term target leverage ratio of 1.5 to 2.0x covenant EBITDA.

Mobico also confirmed that its U.S.-based WeDriveU shuttle and transit business was carved out separately during the sales process and remains part of the Group’s future strategy.

Sentiment Analysis: How Have Markets Reacted to Mobico’s Strategic Move?

Despite the strategic logic behind the School Bus disposal, the immediate market reaction was negative. Following the announcement on April 25, 2025, Mobico Group’s shares plunged by approximately 35%, making it the worst-performing stock on the FTSE 250 index for the day. Closing at 34.82 GBp from a previous level of 58.95 GBp, Mobico’s shares are now trading near their 52-week low of 34.02 GBp.

The decline reflects investor concerns about both the pricing of the transaction and Mobico’s revised earnings outlook, which now targets the lower end of its earlier guidance range. Analysts had earlier assigned a consensus one-year price target of around 93.46 GBp for Mobico, suggesting substantial upside from current depressed levels, but this guidance may be subject to downward revisions based on recent developments.

Institutional sentiment remains mixed. Large institutional investors continue to hold significant stakes in Mobico, but the sharp decline could trigger reassessments of risk and exposure. While no major institutional sell-offs have been publicly disclosed yet, the coming quarterly portfolio reviews could see adjustments.

For retail investors, the risk-reward profile has shifted sharply. Analysts broadly advise a “Hold” on Mobico’s stock in the near term, cautioning that while valuation metrics now appear attractive on a historical basis, uncertainties around earnings dilution, restructuring costs, and delayed debt reduction targets warrant patience.

With the stock currently priced at distressed levels and dividend policies under scrutiny post-sale, market watchers recommend close monitoring of Mobico’s next financial disclosures, particularly the full-year FY24 results scheduled for April 29, 2025.

What Challenges Could Arise from the Transaction?

Despite the strategic benefits, the sale introduces new risks. Post-transaction, Mobico’s operational portfolio will be more geographically and operationally concentrated. This heightened exposure means any downturn in key regions like Europe or disruptions in sectors such as ALSA’s regional transport services could have a proportionally greater financial impact.

Further, achieving the $70 million earn-out depends on School Bus meeting specific financial performance thresholds over three years, with no guarantee of success. If these targets are not met, Mobico will not realize the full anticipated financial benefits from the transaction.

Management acknowledged the transaction process itself has required substantial executive time and resources. There is also a transitional burden, including restructuring costs from the separation of School Bus and the creation of a leaner North American organizational framework for WeDriveU.

Mobico will retain responsibility for approximately £65 million in historical claim liabilities linked to the School Bus business. Additionally, the Group expects to recognize a non-cash impairment charge of about £550 million against the School Bus assets for FY24, with a potential further loss on disposal in FY25 once final accounting adjustments are made.

How Has Mobico’s Broader Business Performed Leading into This Sale?

Trading updates for FY24 reveal a mixed performance across Mobico’s divisions. ALSA has continued to thrive, demonstrating revenue and margin expansion fueled by steady passenger demand and successful contract mobilizations. The newly separated WeDriveU business has also recorded important client wins, supporting confidence in its standalone future.

However, operations in the United Kingdom and Germany have faced ongoing challenges. Particularly, German Rail operations remain under pressure amid sector-wide cost issues, leading to negligible profit contributions from the UK & Germany division and necessitating further onerous contract provisions of approximately £85 million.

Overall, Mobico is expected to deliver its FY24 Group Adjusted Operating Profit at the lower end of guidance. The Group’s statutory result will reflect significant non-cash charges, including a £200 million deferred tax asset write-off, although these accounting adjustments do not impact Mobico’s future cash tax profile.

Importantly, despite these setbacks, early trading in 2025 has remained broadly in line with expectations.

What Does This Transaction Signal for Mobico’s Future?

The Mobico Board unanimously endorsed the School Bus sale, viewing it as essential for delivering a leaner, more resilient group focused on high-growth opportunities. Management plans to continue balancing organic debt reduction initiatives with targeted investments into scalable, cash-generative businesses like ALSA and WeDriveU.

The company maintains that its £500 million hybrid bond remains a core element of its capital structure, offering flexibility as it maneuvers through this strategic realignment phase.

Further updates on Mobico’s medium-term financial targets and strategic priorities are expected during the upcoming FY24 results presentation scheduled for 29 April 2025.

By realigning its portfolio and strengthening its financial foundations, Mobico aims to emerge as a sharper, more focused mobility provider capable of navigating industry shifts and capitalizing on global transport trends.