Investors Flock to Israel's Public Transport Sector Amidst Crisis
Translated & summarized from Globes by baba
Major Israeli investors, including funds and high-tech entrepreneurs, are actively acquiring stakes in the public transportation sector, seeing it as a growth opportunity amidst worsening traffic congestion. Recent deals include Dan Transportation's acquisitions totaling 350 million shekels, and significant investments in Egged. Despite operational challenges like driver shortages, the sector offers defensive characteristics and potential for expansion, attracting substantial capital and leading to significant value appreciation for early investors.
The story in 6 lines · by baba
- Investors are pouring hundreds of millions of shekels into Israel's public transport sector, seeing it as a lucrative investment.
- Dan Transportation recently acquired two companies, Tnuufa and Mesiey Shasha, for a combined 350 million shekels.
- Major institutional investors and infrastructure funds have acquired significant stakes in veteran companies like Dan and Egged.
- The sector's growth potential is driven by increasing population, traffic congestion, and anticipated government investment.
- Despite financial success, the industry faces a critical shortage of drivers and operational challenges.
- The Ministry of Transport is incentivizing improved service quality and technological upgrades through tender requirements.
Investment funds, car importers, high-tech entrepreneurs, and capital market players have been pouring money into Israel's public transportation sector, leading to hundreds of millions of shekels in deals. This influx has often resulted in rapid value appreciation for sellers, typically family-owned companies and bus drivers who have profited significantly from selling stakes in their businesses.
Recent major transactions include Dan Transportation Company's acquisition of Tnuufa, which operates around 350 buses, for 150 million shekels. This follows Dan's purchase of Mesiey Shasha for 200 million shekels. These moves are part of Dan's expansion strategy after its control was sold to CEO Ophir Karani and institutional investors for 1.4 billion shekels. The sellers in the Dan deal, Value Base investment house and LBH fund, reportedly saw a fivefold return on their investment made six years prior.
Prominent investors in the sector include Electra, the Blue Square group, and the Meir group, alongside infrastructure funds like Keystone, Generation, TASE, and Noy. Major Israeli institutional bodies have also entered the market, investing in veteran companies like Dan and Egged. This trend is driven by the perceived potential for growth in public transport due to increasing population and worsening traffic congestion, leading investors to anticipate greater demand and government investment.
Despite the sector's reputation for delays and staff shortages, financial players see it as an investment asset with "defensive characteristics." Nir Turner, Infrastructure Manager at Meitav Gemel and Pensions, which invested 375 million shekels in Egged, noted that public transport is an essential service with long-term contracts often based on mileage rather than passenger numbers. The sector also offers opportunities for expansion into light rail, metro tenders, and international operations.
The Ministry of Transport's tender structure, dividing the country into operational clusters, also contributes to the financial sector's interest. However, the significant capital required for these tenders, often demanding over 150 vehicles, favors large players like those connected to the capital market or vehicle importers. This has led to a consolidation process, transforming historical cooperatives like Egged and Dan into companies capable of attracting investment.
While the financial gains have been substantial, with significant exits and value appreciation for investors, the sector faces considerable operational challenges, primarily a severe shortage of drivers. This is exacerbated by issues like violence against drivers, leading companies to explore solutions such as new training programs, targeting new demographics, improving employment conditions, and advocating for foreign workers, so far without success. The Ministry of Transport is now incentivizing better service quality and technological upgrades through its tender requirements.
Mentioned
