First Group is likely to bid for Arriva’s business outside Britain because of legal hurdles associated with further expansion in the country, two of the people said.

The British transport company may also consider going with another bidder for its UK operations, the duo added.

Infrastructure fund I Squared, which considered a bid for FirstGroup last year, is now considering a bid for Arriva, one of the two people and another person said.

The German state railway company aims to close the transaction next year. Talks with potential bidders are still at an early stage and an agreement may not be reached, all the sources warned.

Arriva, Deutsche Bahn, FirstGroup and I Squared declined to comment.

Arriva, which both owns British rail and operates buses, including London double-decker buses, has forecast a turnover of 4.2 billion euros ($4.6 billion) in 2022 and a profit before interest and tax of 12 million euros.

Transaction activity in public transport is increasing as investors are attracted by low valuations, government incentives to invest in environmentally friendly vehicles and the expectation that commuters will choose alternatives to the car.

Deutsche Bahn spun off Arriva in 2019 and sold its core business last year after a sale attempt failed.

A Bloomberg report in January suggested Arriva could now be worth $2 billion. Sources said bidders were finding it difficult to value the company due to low profitability and high investment required to switch to electric trains and buses.

Arriva is one of several options being considered by First Group, which is being called a “big decision” as it will be the first step towards expanding outside the UK.

A binding offer for Arriva is expected in the coming months, according to two sources.

($1 = 0.9122 euros)