Buyout group hops on German buses as market grows

(Adds comments from General Atlantic exec, details, context)

By Arno Schuetze

FRANKFURT, Jan 7 (Reuters) - U.S.-based private equity firm General Atlantic is taking a major stake in Germany's top two long-distance bus firms MeinFernbus and FlixBus as they merge, illustrating investor interest in an industry just two years old and growing rapidly.

Germany began issuing licences for inter-city bus services in 2013 - previously buses just ran locally and trains were the only public transport option for longer distances.

The new market attracted a raft of entrants but several companies have already dropped out due to stiff competition and price wars.

This tough climate is driving consolidation and MeinFernbus, the No.1 player by passenger numbers, and FlixBus have decided to merge and combine routes.

General Atlantic said it was taking a minority stake in the combined group, making it the second-largest owner after the founders of the companies, and that it planned to provide equity to help expansion.

No financial details were disclosed about the acquisition of the stake of more than 25 percent.

Companies which have quit the market include Deinbus.de, which filed for insolvency last year, while German car club ADAC exited its bus joint venture with Deutsche Post (Other OTC: DPSGY - news) in November, citing "business risks". City2city, a unit of Britain's National Express (LSE: NEX.L - news) , also dropped out of the sector last year.

However many firms and investors remain keen to enter an industry currently worth about 400 million euros ($470 million) a year in revenue and expected to grow quickly. Research group IGES estimates 15-20 million passengers used long-distance buses in Germany last year - up from 8 million in 2013 - and expects similar increases in coming years.

For example, the head of Megabus, owned by Britain's Stagecoach, said this month that his firm was considering entering the market.

The growing competition from long-distance buses has made life tough for rail company Deutsche Bahn, which has seen 2014 profits fall by 100 million euros as travellers opted for cheaper buses.

MeinFernbus operates 320 buses and FlixBus 240. Together they carried 14 million passengers in 2012 and 2013, in total. They have not disclosed sales or earnings figures, but people familiar with the industry said their combined 2014 sales were about 300 million euros.

"We want to help with the expansion in Germany and other European countries and provide equity. It is not our strategy to swamp it with debt and extract capital," General Atlantic's Germany head Joern Nikolay told Reuters, saying he regards the group as a long-term investment.

($1 = 0.8462 euros) (Additional reporting by Victoria Bryan; Editing by Christoph Steitz and Pravin Char)