Frankfurt According to financial circles, the mobility start-up Flixmobility is preparing the possible purchase of new trains worth around one billion euros. Flixmobility is in early discussions with banks and potential funding partners, several people familiar with the matter said. A decision has not yet been made. The planned investment is also subject to reservations, says Flixmobility.
On the one hand, the investment will only be released when the pandemic is over and travel demand has recovered. On the other hand, the project is made dependent on the development of train path prices. If the federal government sticks to the planned increase, the investment in trains may not be future-proof from Flixmobility’s point of view. A company spokesman declined to comment on the information.
Flixmobility was founded in 2012 and, with a valuation of three billion euros, is one of the rare German unicorns – young companies with a valuation above the one billion euro threshold. Flixmobility is the parent company of Flixbus and Flixtrain, the respective divisions for long-distance buses and long-distance trains. The core business is a technology platform that is used, for example, to market tickets.
In most cases, Flixmobility leaves the purchase and operation of the transport vehicles to other companies. This so-called “asset light” strategy relieves the balance sheet, which investors like to see. Buying trains would thus be a departure from this strategy. However, Flixmobility would like to use a trick in the case of a potential order so that it does not have to account for the full amount of the rail vehicles itself.
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In order to be able to handle the deal, the company is relying on investors who will contribute equity to the purchase. Infrastructure investors have identified trains as an asset class that offers good returns in a low interest rate environment. The Hamburg rail logistics group VTG, for example, is currently being prepared for a possible sale and could be valued at six to seven billion euros.
Infrastructure is attractive to investors
Infrastructure investors are different from the tech-focused venture capitalists that have traditionally poured money into Flixmobility. Most recently, this happened in a $650 million funding round in June 2021.
It would not be the first time that the young company has also invested in assets. A few months ago, Flixmobility took over the well-known US bus line operator Greyhound along with 1,200 buses and their drivers. The management has experience with the integration of such tangible assets: In 2019, the company took over the bus provider Kamil Koc in Turkey and has since successfully transferred it to the existing business model.
Nevertheless, the planned order has not yet been approved by the existing investors, according to reports from the corporate environment. Just over 25 percent of Flixmobility belongs to the founders André Schwämmlein, Jochen Engert and Daniel Krauss. The remaining shares are held by financiers such as General Atlantic, Permira, TCV, HV Capital, Blackrock, Baillie Gifford and Canyon Partners.
Mathematically, one billion euros would be enough for about 100 trains. Flixmobility could thus heat up competition in Europe. It is true that Flixtrain, with around 40 German destinations, is relatively small compared to Deutsche Bahn with 140 ICE stations and more than 300 ICE trains alone. But the provider, which only started in Germany in 2017, wants to head for 70 destinations with its green long-distance trains by the summer. The company has also been active in Sweden since May 2021.
It is unclear whether the new trains would also be used in Germany. In the eyes of the team around CEO Schwämmlein, there is one major hurdle: the train path prices. Everyone who drives on the rails of the railway subsidiary DB Netz has to pay this usage fee, including the railway itself. However, the fee was significantly reduced during the pandemic in order to relieve the railway companies. They only had to pay one percent of the fee, the rest was temporarily taken over by the state.
Because the new federal government wants to speed up the turnaround in traffic, many in the industry had expected that track prices would be permanently reduced. But the coalition partners have only agreed on a soft formulation. The use of rail should only become cheaper if the federal budget allows it. According to the latest statements from Finance Minister Christian Lindner, however, it is tense.
According to information from the corporate environment at Flixmobility, one is correspondingly disappointed. In the past, the three founders had repeatedly pointed out how important low train path prices were for more competition and supply on the rails. Next to France, Germany is the country with the highest fee for using the rail network.
Since January 1, railway companies have had to pay 57 percent of the track charges themselves again. The full rate applies from summer. For this reason and because of the consequences of the Omicron wave, Flixtrain significantly reduced the offer in Germany until April.
Flixmobility wants to become a global market leader
Flixmobility has the ambitious goal of making environmentally friendly and affordable mobility available to as many people as possible. It should be no less than the position of world market leader. Expanding to rail would be the logical next step after buying Greyhounds. This has made the company number one in the American long-distance bus market, with around 62 million passengers a year until the pandemic.
Market leadership has already been achieved in large parts of Europe. Flixmobility is a virtual monopolist in the German long-distance bus business with a market share of 90 percent. The company is also active in Great Britain, France, Turkey, Eastern Europe and, since 2018, also in the USA. A presence in Brazil is currently being established.
In addition, there has long been speculation about a possible IPO of the young company. Most recently, Schwämmlein told the Handelsblatt that he saw no need for this: “We are well financed, I’ve always said that,” he explained in October 2021. But transactions such as the purchase of greyhounds and the planned bulk order of trains are ammunition for an equity story that will convince future shareholders.
More: Flixmobility boss Schwämmlein: “Nobody wants to change”