Little bus company, big takeover target

The sector isn’t without its risks. Annual spending by U.S. transit agencies is volatile, having swung between US$1.4 billion to US$3.1 billion over the last two decades, according to an October report by the Mineta Transportation Institute. Companies have gone bankrupt, left the market, or been acquired by competitors, leaving only a handful of major manufacturers: Nova, New Flyer, ElDorado, and Gilig based in Hayward, California.

Grande West has an edge with cash-strapped public transit agencies. The Vicinity, compared to a similarly sized ElDorado bus, costs about a third less to buy, 20 per cent less to maintain, and saves as much as 35 per cent on fuel, according to the March investor presentation.

“The bus that you are comparing our bus to is a fully imported diesel bus from China, it is cheap, and not made in North America,” Sandy Bugbee, treasurer and vice president of investor relations for ElDorado’s parent REV Group, said in an email.

Other manufacturers may offer 30-foot buses “but they just cut 10 feet out of the middle, and it costs the same as the traditional 40-foot bus,” LaGourgue says.

The company is also in the final phases of designing electric and hybrid buses so they don’t lose out to competitors offering those options, said Ezzat.

In March, Grande West announced a manufacturing deal with one of the largest U.S. retail bus sellers, Alliance Bus Group, to make buses at a plant in Atlanta that will meet “Buy America” requirements favoured by President Donald Trump, and would qualify for federally funded procurement requests.

“We expect the Vicinity to gain traction in the U.S. transit market,” says Ezzat, who has raised the stock’s target price five times since the start of 2016.

“We can’t make them fast enough right now,” LaGourgue said. “Once you’re accepted, it just snowballs.”