LONDON/FRANKFURT/NEW YORK (Reuters) – U.S. buyout fund Carlyle and German asset manager DWS are gearing up to bid for British rail and bus firm Arriva after holding preliminary talks with its German owner Deutsche Bahn, sources familiar with the matter told Reuters.

An auction process led by Deutsche Bank and Citi is expected to kick off in mid June, four sources said, valuing the Sunderland-based business at about 3.5 billion euros ($3.94 billion).

Deutsche Bahn, which bought Arriva in 2010, needs to free up cash to slash its debt pile and revive growth.

It wants to receive indicative bids before the summer break with a view to entering exclusive talks with a preferred bidder in late September or early October, one of the sources said.

U.S. private equity firm Apollo and France’s SNCF unit Keolis are also working on making rival offers, the sources said.

DWS is planning to bid as part of a consortium and is currently sounding out other financial investors, one of the sources said.

DWS declined to comment. Deutsche Bahn, Apollo, Carlyle and Keolis were not immediately available for comment.

Arriva, which employs 53,000 people across Europe, runs British rail franchises including Northern and the London Overground as well as buses around the country.

It generated adjusted earnings before interest, tax, depreciation and amortization (EBITDA) of 575 million euros in 2018 on sales of 5.44 billion euros.

British peers Go-Ahead, Stagecoach and National Express trade at 3.5 to 7.5 times their respective core earnings.

Deutsche Bahn, whose net debt stood at 19.5 billion euros at the end of 2018, aims to cash out for as much as 4.5 billion euros, one of the sources said.

However, interested parties have a more conservative approach to its valuation and are pricing the asset at 3 to 3.5 billion euros, the sources said.

Deutsche Bahn kicked off a strategic review of the business earlier this year amid growing pressure to plug a funding gap.

The German firm sees a sale of Arriva as its main priority but it could also pursue an initial public offering (IPO) to maximize its price, the sources said.

Arriva consists of three units – a UK rail division, a European rail unit and bus operations in all of Europe – and while the likes of Go-Ahead, Stagecoach and National Express may try to bid for specific assets, Deutsche Bahn wants to market it as one business and is against a piecemeal deal.

Arriva’s European rail operations compete with Netinera, the German rail subsidiary of Italy’s Ferrovie dello Stato, which is currently looking for a new investor.

Investment firm Cube bought a 49% stake in Netinera from Arriva in 2011 and is in the process of flipping it to another investor, with offers due in mid June, while Ferrovie wants to hold on to its majority stake.

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