When alternatives firm The Carlyle Group bought minicab company Addison Lee in April 2013 for a reported £300 million, Uber was a speck on the horizon. Three years on and the industry, once neglected by entrepreneurs and investors, has become a hotbed for innovation and competition. Black cabs and Addison Lee – once the driving forces behind much of the capital’s private hire activity – are having to adapt to keep pace.
At the time of the buyout, Uber had a fraction of its now 25,000 strong fleet and UberX, its most frequently used method of travel, had yet to launch in London. Other ride-sharing apps like Hailo, Kabbee and Gett were still in their infancy, while black cabs continued to dominate the ‘on the spot’ pick-up market. By contrast, Addison Lee, founded in 1975, was in rude health. The company was the biggest player in London’s £2.5 billion minicab market, with 4,500 cars, revenues of £90 million a year and about a 10% share of the market.
Since then the market has changed beyond recognition, with Uber growing dramatically – the company was recently valued at $ 68 billion, nearly $ 25 billion more than automobile behemoth General Motors. The number of private hire drivers in London has risen year-on-year. In 2014 alone the number of private hire licensed vehicles increased 18.4% while the number of licensed drivers grew by 12.3%, according to the Department of Transport’s taxi and private hire vehicle statistics for 2015.
The drive forward
In response, Addison Lee is taking steps to cement its position in the market. With Uber known for its technology, the company is pouring money into its digital and marketing functions. Although Addison Lee had taken early steps to try to apply technology to the taxi business – in 2010 it was the first minicab company to launch an app that allowed consumers to book a vehicle by phone and it was the first to digitalise its back-office operations – the efforts have increased since Carlyle’s takeover.
Peter Boucher, chief commercial officer for Addison Lee, said: “In today’s competitive marketplace, Addison Lee continues to invest in innovation. Addison Lee’s marketing team has grown from five people in 2013 to 25 today who are responsible for the £8 million that we invest in digital marketing annually.”
In 2015, the company hired Dominick Moxon-Tritsch, Uber’s Europe head of public policy, as its head of public affairs and communications.
With Carlyle’s backing, the company is now also attempting to expand geographically. As of June 2016, Addison Lee announced that customers outside of London would be able to use the app to book cars in Manchester, Edinburgh, Liverpool and Cambridge for the first time. In Manchester alone the company has plans to hire 300 drivers and it aims to launch in 25 UK cities by the end of 2016, in what will be the biggest expansion of the company’s services in its 40-year history.
In June 2015 the company announced plans to take on Uber on its home turf in New York – the world’s second biggest taxi market after London. A spokesman for Addison Lee said the decision to expand was driven in part by demand from existing blue chip corporates who used the service in London. Growth in New York has been “slow but steady” and there are plans afoot to develop the company’s capacity in the city, according to a person familiar with the matter.
Meanwhile, the minicab service has upgraded its London fleet. It announced in May 2016 it had bought 100 new Mercedes Benz E-Class saloons for £3.2 million to cope with growing demand at the executive end of the market, an area the company retains a leading market share in.
But much of the battle may be only just beginning.
The business-to-business segment provides the core focus of Addison Lee’s offering and has allowed it to bump, as opposed to collide with Uber, which largely targets the business-to-consumer segment. Addison Lee supporters believe Uber is more associated with helping young people get home after a night out, while Addison Lee services bankers, lawyers and other city folk travelling home after working late on a deal.
However, Uber, not content with hoovering up vast swathes of the consumer market, is turning its attention to Addison Lee’s bread and butter – the blue chip companies. It has launched an ‘Uber for business’ product, which has attracted illustrious names such as Goldman Sachs and TripAdvisor to sign up. Uber’s ability to scale this service across the 400 cities it has a presence in is something it hopes will incentivise multinational companies to sign up.
Addison Lee’s future success is likely to be strongly influenced by its ability to protect its core business from such challenges.
Although its revenues and profits grew strongly in 2014 and it does not have high levels of debt, according to one person familiar with the matter, Addison Lee has cut its prices as it combats pressure from rivals. Earlier in 2016, Addison Lee dropped off-peak and weekend prices by a third in a bid to compete on price with its cheaper competitors.
Such changes were not popular with everyone. A number of current and former employees protested outside the Carlyle Group’s office on May 24, 2016. One of the people present at the protest, who said he was an Addison Lee driver, told Private Equity News that the changes had dramatically reduced driver earnings. He said: “The amount it leaves you out of pocket varies, but it can be anywhere between 30% and 50%. I spoke to [another driver] the other day who called me up and showed me his invoice and previous invoices, and he’s lost 70%.”
Addison Lee disputes these claims. On June 9, 2016, the minicab company announced that its new driver deal, described by chief executive Andy Boland as “the best in the business” had been accepted by 99% of the firm’s drivers after extensive negotiations between drivers and Addison Lee.
Either way, the move could prove important for the company and its private equity owner ahead of their attempts to convince prospective buyers it has a strong future despite the new level of competition.
In late 2014, the firm received an unsolicited approach from a strategic buyer and a number of other large-cap buyout players also expressed an interest. The process was shelved due to a lack of agreement in pricing but people familiar with the matter suggested the same players could be interested again citing the cash generative, scaleable nature of the business as being particularly attractive to investors.
It is an exit course that Carlyle will be hoping proves smoother than the bumps in the road the market has thrown up in the last few years.