Confirmatory offers for the business, which is expected to be valued at 3-4 billion euros ($3.3-4.4 billion), are due on Thursday, with a final round of bidding expected in late October, they added.
The two investors are seen as the most likely buyers, while peer investor Lone Star also remains in the running, they said.
Arriva competitors - such as Keolis, Go-Ahead, Stagecoach, Transdev or ComfortDelGro - are each only keen on parts of Arriva, and will therefore unlikely prevail in the auction as Deutsche Bahn wants to sell the unit in one go, they said.
Separately, Deutsche Bahn is continuing to prepare for a potential 2019 Amsterdam flotation of Arriva and has recently held presentations for analysts, tasked with crunching numbers and guiding investors on valuation.
Deutsche Bank and Citi are organising the initial public offering as so-called global coordinators with the help of BNP, HSBC, Credit Suisse and ING, they said.
Deutsche Bahn, the bidders and banks declined to comment or were not immediately available for comment.
Deutsche Bahn's supervisory board is scheduled to convene on September 18 to discuss the deal, although a final decision on whether to sell or float the business will only be taken in October, the sources said.
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 4.2 to 7.4 times their respective core earnings.
Arriva consists of three units: a UK rail division, a European rail unit and bus operations in all of Europe.
The UK rail environment is facing challenges as franchise bidders are being asked by the government to take on the full long-term funding risk of part of the Railways Pension Scheme.
Stagecoach Group is suing the Department for Transport after it was disqualified for bidding for three franchises because it did not comply with that request.
(Additional reporting by Pamela Barbaglia; Editing by Michelle Martin)
By Arno Schuetze and Markus Wacket