Barbarians at the train controls: How KKR is making a move on European rail
Kohlberg, Kravis and Roberts, the private equity shop famously given the sobriquet ‘barbarians at the gates’ for its buyout deals, has taken a highly significant step today – backing a new locomotive leasing company.
KKR has helped finance a deal by the European Locomotive Leasing company (ELL), a new venture led by the former chief financial officer of Munich-based rolling stock company Railpool Christoph Katzensteiner.
What’s interesting about KKR’s move into European rail infrastructure is the context in which it takes place. The leasing of rolling stock is a young industry, less than 10 years old. There are about 500 locomotives for hire across Europe at the moment, but this is forecast to grow to about 850 by 2018.
The deal itself is fairly straight forward. KKR funds ELL to help it acquire 50 high-tech locomotives from Siemens, which ELL will then lease out to train operators for a fee.
The new trains are called the Vectron trains, which are made by German company Siemens. This slightly gushing video from Siemens shows the new locomotives in action.
What’s more interesting – and gives a clearer indication of why KKR has invested in ELL – is this map from the International Union of combined Road-Rail transport companies. which shows the concentration of cross border rail traffic across Europe.
As you can see, much of the concentration emanates from Germany into eastern Europe. This is the region KKR and ELL will be focusing its efforts to serve, leasing out locomotives to companies operating in this region, which clearly has a large base of customers to serve.
Another reason KKR is moving into European rolling stock is the growth of cross border rail travel being spurred on by the new European Train Control System, part of a cross-border initiative to link up rail travel systems across European borders.
This map forecasts the future look of key train ‘corridors’ across Europe, which will link passengers and goods being transported across the continent along cross border routes using the same rail systems.
Looking at these two maps, it’s clear KKR is effectively taking a bet on the future dissipation of rail borders for freight and passengers across Europe. Siemens, too, has made such a bet, with its investment in the Vectron train.
If KKR and Siemens are predicting an increase in cross border rail integration – both are large successful companies which don’t take big bets lightly – it’s more than likely that that’s what we will see.