5/27/2021Verra Mobility Loses Money, Buys Its Main Money-losing Rival
Verra Mobility wins approval of deal to buy Redflex, though both photo ticketing companies continue to lose cash.
Neither Redflex Traffic Systems nor Verra Mobility are currently profitable, but that will not stop the two photo enforcement giants from merging. Verra Mobility (formerly American Traffic Solutions) won over Australian shareholders after Verra increased its buy-out offer to 96 cents from 92 cents per share. Once joined, the newly enlarged Verra Mobility will elevate its already dominant position to the status of near monopoly in the red light camera and speed camera market.
Verra paid $152 million for Redflex, the second-largest operator of red light camera and speed cameras in the United States, even though Redflex has been entirely unprofitable since 2014, when the Federal Bureau of Investigation revealed the firm was enmeshed in corruption in Illinois, Ohio and elsewhere in the country. The plunge in stock value that followed made Redflex an attractive target for the buy-out. Australia's federal court has now signed off on the deal.
Thanks to the virus scare, Verra has faced financial trouble of its own. For the first quarter of 2021, Verra reported a loss of $11.8 million before taxes. The company's business relies on extracting money from motorists using toll roads in rental cars, or being hit by automated ticketing machines. Profits from both plunged as lockdowns stifled travel.
"Revenues from rental car companies in our commercial services segment decreased significantly in 2021 as a result of reduced airline travel and widespread travel restrictions related to COVID-19 affecting the full three months of the first quarter in 2021 compared to only impacting the month of March in 2020," the company explained in filings with the Securities and Exchange Commission. "In our government solutions segment, school closures resulting from the COVID-19 pandemic have negatively impacted revenues from our school bus stop arm camera and school zone speed camera products. Reductions in vehicle traffic in jurisdictions where we operate photo enforcement programs and temporary inactivity of school zone speed cameras have all negatively impacted service revenue in our government solutions segment."
Verra is banking on its ability to recover, as its remaining photo ticketing rivals are few. Conduent is a shadow of its former self, with the company's photo enforcement division having passed from company to company, diminishing each time. Conduent split off from Xerox, which split from Affiliated Computer Services, which split from Lockheed Martin IMS after its founding as US Public Technologies, one of the early pioneers of photo ticketing. The division once had big California cities like San Diego, but its market share has since shrunk as most of the cities in the Golden State that experimented with red light cameras have since dropped the idea. Smaller red light and speed camera operators like Safespeed are embroiled in a corruption scandal, leaving little competition for Verra.
Verra Mobility's accumulated debt rose to $1.2 billion.