Uber’s UK taxi rival costs you peanuts

Uber Technologies Inc.’s initial public offering will be a bittersweet moment for private equity giant Carlyle Group and its London minicab firm Addison Lee Holdings Ltd.
Uber will almost certainly join its fellow ride-hailing company Lyft Inc. in securing a nosebleed market value, despite making heavy losses. The investor buzz could benefit Carlyle as it looks to exit from its own unprofitable taxi operator. Unfortunately, fierce competition from Uber is also a big reason why Addison Lee has been such a difficult investment for Carlyle’s 5.4 billion euro European buyout fund.
Media reports suggest that the US private equity firm hopes to sell Addison Lee for between 300 million pounds and 500 million pounds and that Jaguar Land Rover Automotive Plc, the luxury British carmaker, might be among the interested parties.
However, Carlyle’s previous attempts to sell Addison Lee came to naught, and it’s not certain whether recent efforts to strengthen the business by expanding internationally will deliver sustainable profit growth.
Carlyle bought Addison Lee in 2013 for about 300 million pounds, including debt, but it was a poor moment to acquire a fleet of more than 4,500 London minicabs just as Uber had launched in in the city.
Addison Lee’s latest accounts show the scars from Uber’s arrival remain unhealed. Net losses almost doubled to 37 million pounds in the 12 months to August 2018. While that was due partly to one-off restructuring costs, this was hardly the first time company lost money under Carlyle’s ownership.
Wisely, Addison Lee responded to Uber by investing heavily in technology and a premium car service, but that has taken its toll on the balance sheet. In fairness, Addison Lee does at least have positive Ebitda, unlike Uber.
Addison Lee’s nascent driverless car project and various US acquisitions seem designed to help it benefit from the Uber halo effect and to re-position a plain-vanilla taxi fleet operator as a growth company. Revenue has jumped by almost half since 2016 to near 400 million pounds and the US now accounts for about one-quarter of those sales.
Corporate clients provide about three-quarters of the car service’s revenue, offering some protection from Uber’s price war in consumer ride-hailing. Potential buyers may worry, though, about Addison Lee’s still predominantly British business, especially given the recent pushback against gig economy employment practices by the country’s judges.
Along with Uber, Addison Lee has faced legal challenges over its classification of drivers and couriers as self-employed contractors. If its appeals are unsuccessful, the company might have to offer worker benefits such as holiday pay, inflating its operating costs.
The risk section of Uber’s IPO prospectus says plenty about the difficulties of making money from selling car rides. Addison Lee could no doubt tell you the same.
—Bloomberg

Chris Bryant is a Bloomberg Opinion columnist covering industrial companies