Industry Trend Analysis - NTV Acquisition To Strengthen Firm's Position In Italy And Europe - MAR 2018

BMI View: The recently announced buyout of Italian passenger rail operator Nuovo Trasporto Viaggiatori will boost the firm's ability to compete in the Italian and European rail markets. The involvement of US-based private equity fund Global Infrastructure Partners in the deal could signal a growing appetite from institutional investors for European rail assets.

The acquisition of Italian rail operator Nuovo Trasporto Viaggiatori (NTV) by US-based private equity fund Global Infrastructure Partners (GIP) will provide NTV with new financial resources, bolstering its plans to expand in the Italian and European passenger rail markets. On February 7, it was announced that the board of NTV had accepted an offer of EUR2.0bn (USD2.4bn) for a 100% equity stake in the company from GIP after the board had rejected a previous offer of EUR1.9bn (USD2.3bn) earlier on February 7.

The deal will see GIP take control of one of the leading privately-controlled passenger rail operators in Italy. Since the launch of its Italo high speed rail service in 2012, NTV has seen enormous growth, increasing its share of the Italian high speed market to 35% in 2017, boosting revenues from EUR266mn in 2014 to EUR454.9mn in 2017, and realizing profits of EUR33.8mn in 2017. Building on its success, NTV was set to launch an initial public offering (IPO) of around 40% of the company in February which has now been cancelled following the acceptance of GIP's offer.

Italo On The Rise
Italian High Speed Rail Market - Total Ridership and Italo Market Share
Source: Nuovo Trasporto Viaggiatori, BMI

Firm Well Placed To Expand In Italy, Europe

The acquisition of NTV by Global Infrastructure Partners will provide the firm with access to new funds which in turn will bolster its current plans to expand its high speed rail services in Italy to reach stations currently served only by publicly-owned rail operator Ferrovie dello Stato (FS). Under the terms of the liberalisation of Italy's rail sector completed in 2001, private operators can compete with FS throughout the country's high speed network while rail infrastructure remains fully controlled by FS.

In addition to the existing network, the deal will also position NTV very well to take advantage of new high speed rail infrastructure currently being developed in Italy by FS with projects in the pipeline including the construction of a new high speed rail lines linking Naples with Bari, Milan to Venice and Turin to Lyon.

More significantly for growth opportunities over the coming five years is the ability for NTV to expand into other European markets once EU rules mandating full liberalisation of passenger rail operation in EU member states come into force in 2020. Given the vast number of major high speed rail projects currently construction or in planning through Europe, we expect the passenger rail operation to present substantial opportunities for investment over the coming years, particularly once liberalisation takes full effect. Underpinning this view, two of the markets that have yet to liberalise are Spain and France, which already host two of the largest high speed rail networks in Europe and are home to a number of major projects to expand their rail networks even further over the coming years.

High Speed Rail In Focus
High Speed Rail Project Pipeline, USDbn
Source: BMI Key Projects Database

More Private Equity Investment In Rail Sector Likely

The deal, the first passenger rail acquisition by Global Infrastructure Partners, indicates a growing appetite on the part of private equity funds for European high speed rail assets. The news follows the recent acquisition of the UK's High Speed 1 (HS1) by a consortium led by InfraRed Capital Partners Limited ( InfraRed) and Equitix Investment Management Limited in July 2017. As Europe's passenger rail sector is liberalised over the coming years, we expect to see opportunities for private investment grow, leading to a new influx of private capital into the sector.

Investment Deals To Increasingly Target Rail
Share of Secondary Stage Infrastructure Deals By Industry (2008-2017)
Source: Preqin Infrastructure Online, BMI