Quadrant buys Australia's Great Southern Rail from Allegro

The transaction size was not disclosed but AVCJ understands it gives the rail operator an enterprise valuation of A$100-200 million. Allegro will generate an IRR in excess of 100% on an investment made in May 2015, and retain a meaningful minority stake in the business. The GP ran a restricted sale process, primarily engaging with a handful of strategic players before Quadrant came in for the asset.

GSR operates three luxury transcontinental passenger services: The Ghan between Adelaide and Darwin; the Indian Pacific between Sydney and Perth; and the Overland between Melbourne and Adelaide. The emphasis of these multi-day trips is on experiential tourism, with travelers given the opportunity to make stops along the way and take in gold mines, ghost towns, camel-riding and river cruises.

However, when Allegro acquired the company from UK-based Serco it was a transportation service that relied on government subsidies. "It wasn't the right fit under its previous owner but it had a strong management team in place, iconic assets and was well positioned to capitalize on the forecast growth of the luxury experiential tourism sector in Australia," said Adrian Loader, founding partner and managing director at Allegro.

By the time the subsidies ended, the private equity firm's turnaround work had already begun. There was significant investment in capital expenditure that went towards improving the on and off-train experience - with a view to providing a level of service akin to the Orient Express and the Rocky Mountaineer. Once that was achieved, the focus switched to marketing in the form of extensive PR and an aggressive advertising campaign.

"Chris Tallent, the CEO, has done a remarkable job of focusing on the quality and detail, emphasizing the customer experience," Loader added. "He coined the phrase, ‘dirty boots and fine wines,' because you get off the train and experience the outback and then get back on board and enjoy an amazing service."

Switching from a transportation-led to a tourism-led model also involved reducing the number of journeys and lengthening the trains. This delivered economies of scale that boosted yield per journey, but the real difference came through increased demand. GSR's services are close to fully booked for the current calendar year and 40% sold for 2017.

Quadrant will retain the existing management team and help further develop the GSR brand and rail experience. Marcus Darville, managing partner at the firm, said that GSR is well placed to benefit from "the growing trend towards experiential travel by domestic and inbound leisure travelers."

Quadrant closed its eighth fund at A$980 million ($754 million) in mid-August. GSR represents the fourth new investment announced since then, after Goodlife Health Clubs, Injury Treatment, and WorldMark Group. For Allegro, this marks a second exit in three months, although the other investment - molded rubber parts specialist Vulcanite Holdings, which was sold to Continental - predates the current fund.

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• Topics
• Australasia
• Trade sale
• Buyouts
• Consumer
• Australia
• Allegro Funds
• Quadrant Private Equity
• Exit