Over the past five years, more than 140 motorcoach operators have been consolidated by one of three companies.
Looking to put a national footprint in the industry, Coach USA, VecTour (formerly Travelways) and Greyhound gobbled up independent operations at a fast pace. The majority of those operators still function independently, but were given more financial stability as part of the larger companies.
The current slowdown in the economy has definitely affected the motorcoach industry and the rate of consolidation. Officials at the three consolidators feel the slowdown in acquisitions is just like any other business cycle and will eventually pick up again. In the meantime, they are focusing on internal growth and finding operators that are a better fit.
“The big wave that hit over the last five years has definitely diminished,” says Peter Pantuso, president and CEO of the American Bus Association (ABA). “The availability of money for that type of investment also diminished and many larger-than-average companies are already taken.”
While many of the motorcoach operators that comprise the ABA have had varied experiences with being consolidated, Pantuso says the majority of feedback has been positive.
Victor Parra, CEO of the United Motorcoach Assocation, says the initial concern with consolidators coming into the industry has subsided. Instead, many operators have carved out niche markets and remained independent.
Parra sees the slowdown in acquisitions as something that might one day benefit the motorcoach industry by creating a brand identity. “Before you create the brand, you have to create the operating structure,” he says. “The [consolidators] are absorbing what they purchased and determining how to best integrate into a unified, functioning corporation.”
Coach improves operations
Leading the pack in motorcoach consolidation, Coach USA acquired about 110 companies and reached into 120 markets since its inception in 1996. Through those, the company has spread into nearly every travel-related market: charters and tours, sightseeing, taxis, airport shuttles, school buses, transit contracting and commuter and line-haul.
“In acquiring companies, we probably got one that did just about everything,” says David Carroll, senior vice president of acquisitions and business development at Coach. “Some we didn’t plan on, but they turned out to be good businesses.”
Coach’s seemingly constant acquisitions have slowed this year because the company wants to focus on improving its existing business. The company is lessening its emphasis on those segments that are not great profit providers and concentrating on potentially acquiring higher-margin performers or those with a special or unique niche, Carroll says.
“At some point, you’ve got to start running [all the operations] as one business,” Carroll says. “Initially, it was important for the company to show revenue growth, and that was done purely by buying companies.”
When Coach was acquired by Stagecoach in 1999, the company’s focus turned to margin growth and integration, Carroll says. The motorcoach industry also began changing around that time, with companies that were once making decent earnings operating with slimmer margins, he says.
“It’s a much tougher industry today than it was three or four years ago,” Carroll says. “Historically, it’s been fairly easy to liquidate coaches and take equity on used coaches. That value is not there anymore.”
Coach’s strength in a tough industry was acquiring high-quality companies that already had strong branding. All business acquired by the company were local operators. If there was more than one operator covering the same market, Coach integrated them.
Carroll says there are still operators out there looking to be consolidated to offset increased costs. Acquisition by a company like Coach means getting some money for the business or an exit strategy if the owner is thinking of retiring.
Of course, Carroll says, there is always a place for independent operators in the industry.
Coach will still consider acquiring operators but is now concentrating on more internal growth. Beginning Sept. 1, Randy West replaced retired CEO Frank Gallagher. What that means for the direction of the company is currently unknown, but Carroll says the company will work on creating a stronger management structure. Coach maintains a fairly decentralized structure, with most employees out in the field where the business is, he says.
Wherever its future plans lay, Coach initially began as a consolidator and will continue in that vein for some time.
“When you look back over the timeline, consolidation stands out on the horizon as an important event in the motorcoach industry,” Carroll says.
VecTour holds on to brand
Though it doesn’t like to be referred to as a consolidator, VecTour has acquired 16 operating companies since it began business in 1997.
Ten of those companies remain under their original names, with no indication that they are part of VecTour, says Joe Scott, senior vice president of operations.
“Part of what we bought is the name … and all the things that made them great over the years. Being part of VecTour doesn’t do anything for them,” Scott says.
VecTour purchased operators in some of the strongest travel markets, including Chicago, Las Vegas and Orlando, Fla. The purchased companies were owned by people who have been in the industry and succeeded.
“We’ve benefited from taking some of the best people in the industry and getting the collective ideas of those people,” Scott says. “We tried to lock those people into long-term contracts.”
Some of the companies VecTour bought were grouped together and operate under the strongest name. Other companies were sold. The company is still looking to purchase operators but has become a little more particular when it comes to choosing which ones.
“We are looking for more recession-proof businesses, like transit and contracting,” Scott says. “We want strong performers — we don’t want to buy something and have to fix it up.”
VecTour is also looking for companies that don’t have charter as their main business. “The charter market is under the most pressure now economically,” Scott says.
Scott says the market for acquisitions has declined, but feels there’s a similar market decline in all businesses. In some cases, motorcoach operators are unwilling to sell because a company that was worth $10 million two years ago may only be worth $6 million today.
Like Coach, VecTour maintains a loose management structure and only has 10 people in its main office. The company buys insurance for all of its operators and deals with the buying, selling and financing of vehicles but leaves the operating practices and decisions up to the original owners.
VecTour, which operates about 1,000 vehicles (including motorcoaches, minibuses, vans and paratransit vehicles), last year changed its name from Travelways. That was done in part to distinguish itself from Trailways, an industry organization. It was also done, says Scott, to move away from the stigma that the company is a consolidator. The new name stems from the Latin words for transport by carriage and the English word for point or direction.
Greyhound seeks right fit
During the last four years, Greyhound acquired 18 companies, 13 of which were motorcoach operators. This year, its only acquisition has been a cruise line service company.
Because of its large size, Greyhound’s acquisition strategy has been to buy those companies that provide a strategic fit and have synergy with its existing businesses, says Jeff Sanders, CFO of Greyhound. Besides acquiring motorcoach operators, Greyhound purchased two local courier companies, a taxi company and terminal restaurants.
“When there is a company that makes sense, we acquire it, and when it doesn’t, we wait until the right opportunity comes along,” he says.
For now, there are not many that fit, and Greyhound is concentrating on expanding its Greyhound Travel Services (GTS) division. GTS is expanding rapidly and includes vacation, sightseeing, charter, shore and destination management services.
“When you reach [a certain] point, you switch to internal growth and ‘tuck in’ acquisitions where you can achieve operational or management synergies ... good tuck in acquisition opportunities are few and far between,” Sanders says.
The company, which operates about 2,700 vehicles in the U.S. and Canada, was not affected by parent company Laidlaw’s financial difficulties because it has its own third-party funding.
With its strong customer base and growing services, Greyhound just might be making more acquisitions in the near future. “I don’t think we’ll see the ‘buy anything with wheels’ mentality that existed, but there will always be a market for good companies which provide a strategic fit,” Sanders says.