By Andres Gonzalez, Amy-Jo Crowley and Emma-Victoria Farr
LONDON (Reuters) -British transport company FirstGroup and infrastructure fund I Squared are weighing competing bids for parts of Deutsche Bahn's international transport business Arriva, according to a number of people familiar with the matter.
FirstGroup would likely bid for Arriva's activities outside the UK because of regulatory hurdles associated with further expansion in the country, two of the people said.
The British transport company may also consider partnering with another bidder for the UK operations, the two added.
Infrastructure fund I Squared, which considered making an offer for FirstGroup last year, is now mulling a bid for Arriva, one of the two and another person said.
The German state-owned railway operator has said it aims to close the transaction next year. Talks with potential bidders are still at an early stage and a deal may not be reached, all of the sources cautioned.
Arriva, Deutsche Bahn, FirstGroup and I Squared declined to comment.
Arriva, which runs British rail franchises as well as buses including London's double deckers, reported 4.2 billion euros ($4.6 billion) of sales in 2022 and 12 million euros of earnings before interest and tax.
Deal activity in public transportation is growing with investors attracted by low valuations, government incentives to invest in eco-friendly vehicles and the expectation that travellers will opt for alternatives to cars.
Deutsche Bahn put Arriva on the block in 2019, eventually selling off its non-core activities last year after the attempted sale failed.
A Bloomberg report in January suggested Arriva may now fetch as much as 2 billion euros. The bidding groups are struggling to value the business because of low profitability and the high investment needed to switch to electric trains and buses, the sources said.
Arriva is one of many opportunities FirstGroup is considering, one of the people added, calling it a "big decision" because it would be a first move to expand outside the UK.
Binding offers for Arriva are expected in the next couple of months, two of the sources said.
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