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MARKET COMMENT
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The acquisition of Coach USA by Stagecoach Group (LSE: SGC) was supposed to be an "exciting and significant development" for the coach and train operator. It has turned out to be anything but. At the time of the purchase, back in July 1999, the company believed that Coach USA provided a good platform to exploit the strong organic growth characteristics of the North American commuter, urban and charter markets. Today, Stagecoach Group wrote off £575m from the value of its embattled American bus operation and said it would sell parts of its US unit. The company will also consider disposing of its taxi operation and restructure the US business into a smaller but more robust outfit. Today's climb down is an admission that the company overpaid for its venture into the US. Stagecoach is not the first company to see dollar signs before its eyes. This often leads to the misguided belief that entry into the land of opportunity was simply a licence to print money. It could have been so very different had economic growth in the US not declined and 11 September never occurred. But they did. And the rosy scenario of acquisition followed by integration and a pinch of synergy never happened. Growth by acquisition is often seen as an easy option to expand a business. However, poorly executed acquisitions is quite often the downfall of many a business that attempt this strategic option. In the case of Stagecoach bad execution coupled with a failure to consider the downside risks was the company's undoing. Stagecoach today reported interim numbers that showed turnover remained largely flat at £1.1b. The net loss was £540m compared to a profit of £23m last time. Before goodwill amortisation and exceptional items, the pre-tax profit was £75m. Apart from Coach USA, the company's other operations appear solid. The UK bus operation even showed a modest improvement in turnover. Today's acknowledgement by Stagecoach should draw a line under the company's imprudent acquisition strategy. That should put the derailed coach and train operator back on track and could bode well for the future.