Business Model

init is a university spin-off from Karlsruhe founded in 1983. In the 1980s, founder and CEO Dr. Gottfried Greschner developed a computer-aided operations control system for public transportation.  He sold his first such system to the city of Osnabrück in 1988. Such systems, known today as Intermodal Transport Control System (ITCS), are the brains of a public transportation authority. It contains many functionalities such as communication between the bus/subway driver and the control center, computer-supported driving or dynamic passenger information (“dynamic” because delay information can be transmitted in real time).

Early in the company’s history init started expanding abroad. In 1990, the first ITCS was sold to the city of Stockholm and at the turn of the millennium init ventured into the US. Taking quite some risk, init “gave away” some systems to gain market access. The proceeds from the IPO during funded this leap of faith. Today, init has placed more than 130 ITCS all over the world: Hamburg, Seattle, Dubai, Montreal, Portland, and many more. The ITCS segment accounts for around 25% of sales. This changes slightly each year, as larger projects shift the proportions.

The next business segment that init established is “Ticketing”. As a result of the growth in recent years, ticketing has now developed into the largest segment, accounting for around 45% of sales. init has sold more than 130 ticketing systems around the world. Through a combination of in-house developments and thoughtful acquisitions, the company has achieved a market-leading position and today drives the innovation in the industry. Subway tickets or bus tickets offer considerable innovation potential. An ID-based hop-ticket system has been implemented at the progressive transportation authority in the city of Portland, Oregon.  Passengers no longer have to buy a ticket for a specific route or trip; they simply hold their NFC-enabled cell phone (Apple Wallet, Android Wallet, or other digital identification cards) against a sensor at the stop and get on. The init back-end system settles the billing automatically. This even works across state borders; init can allocate sales to the various transportation authorities precisely.

Parts of the “mobile” ticketing technology come from a clever purchase made in 2016. init acquired loss-making HanseCom, a joint venture between Siemens and Hamburger Hochbahn. According to the company, HanseCom has the second most frequently used mobile phone ticket platform in Germany after Deutsche Bahn. Further, HanseCom has a subsidiary called PTNova. 60% of all ticket payment flows and subscriptions in Germany are processed via this platform.

The third meaningful segment with approx. 20% of sales is automated passenger counting (“APC”). The key operation of the segment is Berlin subsidiary iris-GmbH. init became a majority shareholder in 2016. iris manufactures APC sensors and appears to be the gold standard in the industry, as init‘s competitors are also among its customers. The company has achieved this status with so-called “time-of-flight” camera systems. This enables three-dimensional imaging. iris can therefore not only count how many passengers enter and exit a subway but can also recognize whether the passenger is a wheelchair user, a child, or a dog. This technological advantage has led to the most important competitor Hella Aglaia (subsidiary of the automotive supplier Hella) gradually being pushed out of the market.

The value-add of the APC technology for customers is manifold. The capacity utilization of buses and trains can be better monitored.  It’s now also possible to identify at which stops and specific doors it takes particularly long for all passengers to de-board and board.  With this knowledge, a transport authority can better optimize its operations and gain valuable seconds & minutes that can be translated into significant cost savings in the overall context.

What we like about the business model

ITCS and ticketing are products/services with high switching costs. Problems and failures in switching providers can seriously interrupt a city’s public transportation network. Accordingly, changing an ITCS provider is as sensitive as a company switching its ERP system. In addition to the sticky nature of the products, we consider init‘s customer base — public transportation authorities — to be extremely attractive. Conversely, this also means that it is difficult to steal customers from competitors and generate growth with completely new platform implementations. It is therefore important to present new solutions and innovations within the existing, well-protected customer landscape. Among ITCS providers, we consider init to be the most broadly positioned and innovative player. The customer and market structure appear to be ideal for profitable cross-selling.

The market is oligopolistic. There are typically 2-3 relevant players in each country. In Germany, these include init, Berlin-based IVU Traffic Technologies, and a former Siemens technology, which is now in private equity hands and operates under the name “Trapeze”.

init seems to be leading its competitors in its ability to adapt its own business model to provide additional value to customers.  This can best be illustrated by the ticketing project in Seattle. In 2007, init installed its ITCS.  It was awarded the contract for ticketing at the end of 2018. init and Seattle then set up an “operator model”. init was awarded an 11-year contract with a total volume of €42m.  init is responsible for the entire ticketing infrastructure:  besides operating and hosting the software platform, this also includes the replacement of defective screens on ticket vending machines. This allows init to grow even deeper into its customers and improves the predictability of its sales. The Seattle experience shows how init transformed a project business into long-term recurring sales. The efficiency gains that init is achieving increase its margin.

Two strong tailwinds


The ticketing example of Seattle is radical outsourcing of transportation operations. A similar situation can currently be observed in Germany. In March 2019, Deutsche Bahn announced that software from init competitor IVU would be involved in vehicle planning. In the future, external software will be used within the core systems of Deutsche Bahn. We believe that these outsourcing projects are part of a larger trend in the sector. Public transportation is getting ever more demanding and at the same time it is becoming more difficult for public authorities to recruit enough staff. Thus, there is a very strong argument to invest more and more in software and to outsource processes to small, agile niche providers such as init or IVU. If the outsourcing thesis is correct, it is wise to offer an integrated product and solutions portfolio from ITCS, over APC, to ticketing: the simpler the outsourcing process, the better.


Nearly every day brings a new climate change horror story.  This narrative has reached both politics and the business world (note the cash inflows to ESG funds, green bonds, sustainability funds etc).  One simple lever to attack pollution and reduce CO2 emissions within cities is better public transportation. Inner-city traffic jams are harmful to the environment and slow economic activity.  Municipalities are increasingly using cheap capital to renew and expand the public infrastructure.  This is the perfect setting for innovative, agile solution providers such as init to grow quickly.

Increasingly, there are car bans both within cities and on important roads.  Germany’s ban on older diesel engines within its largest five cities is one example.  In another example, as of July 2019, the Mainkai, the street along the river in Frankfurt, is closed for a trial year; Frankfurt is considering a similar test on the lively Berger Strasse.  If such car-bans become more common within cities, it is increasingly important that the public transportation system becomes more flexible.

Why now?

In the years 2015 to 2018, there was an investment slump in ITCS systems. Many municipalities had previously made sizable investments and expansion budgets were not available. Such cycles are par for the course.  Instead of sitting out this slump, init pushed ahead with innovations and diversified its sales base. This included the HanseCom acquisition, taking a majority stake in iris, and investing in internal research projects.  This strategy had the beneficial dual effect of reducing the company’s product concentration risk while making its increasingly integrated products more attractive to its customers.  As the next phase of public infrastructure investment begins, init’s future looks bright indeed.

Like many university spin-offs with a technical background, init is blessed on the one hand with inventive talent and an entrepreneurial culture, but at the same time burdened by an underdeveloped awareness of business issues. One sign of this is lax working capital management in the form of inflated inventories as the company wants to offer its customers perfect delivery capability; it also has inflated accounts receivable as it does not want to disturb its customers with systematic payment reminders. The latter was only introduced in 2019.  Much more potential could be unlocked by a more commercial owner such as private equity.

Corporate governance is not ideal. For a listed company, too many family members serve on the boards. However, we have met talented non-family board members such as CFO Jennifer Bodenseh, who has consistently been promoted within the company.


The following table[1] depicts what can happen to the margins of a business too dependent on new projects. Previously delivering a 15-20% EBIT margin, init’s margins contracted in 2015 – 2018. However, these years were also an investment phase (see the capex line) and management anticipates a resulting period of harvesting cash flows.

init is currently valued at an enterprise value of c. €250m, with a market capitalization of €234m. One could buy the entire company today, notably on a compressed margin profile, for slightly more than 12x EBITDA (2019e) or 15x EBIT (2019e). A financing bank would provide a buy-out debt package of c. 6x leverage. If an investor held the company for 4-5 years and met current market expectations, this would yield a return of 20% p.a. We model only slight improvements in working capital and capital allocation. We never assume multiple arbitrage in our LBO models, but one can make a compelling argument.

init’s current valuation appears low relative to listed competitors and comparable transactions. Competitor IVU is trading at 28x EBIT following its re-rating this year.  In 2016, the Karlsruhe-based traffic software company “PTV” was acquired for almost 30x EBIT.  This would imply that the current price of init stock should not be €23-24, but rather north of €40.

For the value of init to unfold, however, no private equity fund needs to submit a takeover bid. init must first and foremost execute operationally. Increasing professionalization should put the company on the map for many investors. In addition, the market might eventually realize that a technology like iris has much broader application potential than passenger counting, e.g. in the retail sector. If iris were to be auctioned today, we would not be surprised if it turned out to be worth more than half of the entire EV of init group, (i.e. more than €100m).

This train does not end here.

[1] source: S&P Capital IQ. FY2019ff based on broker consensus.

[2] inventory + accounts receivable – accounts payable



Please consider our disclaimer regarding customer information