* Owners strike deal to sell 69 pct stake ahead of IPO
* Listing later in June expected to value AA at 1.4 bln stg
* Follows troubled flotation of sister company Saga
(Adds detail on management buy-in)
By Freya Berry and Anjuli Davies
LONDON, June 6 The private equity owners of the
AA have struck a deal to sell a 69 percent stake in the British
motoring organisation ahead of a planned flotation later this
month, hoping to side-step the problems they had listing sister
company Saga in May.
Permira, Charterhouse and CVC
said on Friday a group of investors had committed to buying the
stake for 250 pence a share, or 930 million pounds ($1.6
The AA, best known for its roadside recovery services, will
float in London in the second half of June at the same price,
with the sale of new shares and the remaining stake of the
private equity firms expected to give it a market value of
around 1.39 billion pounds.
Permira, Charterhouse and CVC faced a string of problems
when they listed sister-company Saga in May, including
controversy over its classification as a specialist retailer
rather than an insurer.
The stock priced at the bottom of its expected range and has
since fallen well below its issue price of 185 pence,
disappointing thousands of Saga customers who bought into the
The poor appetite also meant Permira, Charterhouse and CVC
decided not to sell any shares, leaving them struggling for an
exit from an investment already seven years old. Private equity
firms generally try to get out of their investments four to six
years after buying in.
They will sell their stakes to a management buy-in team led
by Bob Mackenzie, a former boss of car insurer Green Flag who is
to become AA's executive chairman, backed by institutional
Those investors, who will take on AA's roughly 3 billion
pounds of debt, include Aviva Investors, Blackrock
, CRMC, GLG Partners, Henderson Global,
Henderson Volantis, Invesco, Legal and General and
"The AA is a fundamentally strong business and underpinning
our approach is a clear strategy to invest in systems and new
technologies to further enhance the service provided to our
members and customers, to steadily reduce the AA's existing debt
and to develop the growth opportunities that we have
identified," Mackenzie said in a statement.
COOLING IPO MARKET
A previously hot market for initial public offerings (IPOs)
has cooled somewhat in recent weeks, with fashion chain Fat Face
pulling its listing the day before Saga's debut.
However the market still has some jumbo debuts in the
pipeline, including that of ING's insurance arm NN
Group, expected to be one of the biggest European IPOs of the
The AA will offer up to 554 million new and existing shares
in its flotation, it said, without breaking out exactly how many
The shares will be sold in a so-called accelerated public
offering at the announced price, rather than through a
bookbuilding process which allows investors to bid across a
range of prices and can take several weeks to complete.
Permira, Charterhouse and CVC have owned the AA since 2007,
when they merged it with Saga into parent company Acromas in a
6.15 billion pound deal.
The AA is the UK's biggest motoring organisation and
roadside recovery service, with around 16 million members. It
also offers motor and home insurance and a driving school.
The firm, which says it rescues a broken-down vehicle every
nine seconds, had earnings before interest, tax, depreciation
and amortisation (EBITDA) of 422.8 million pounds in the year to
Jan. 30. Pretax profit was 214.6 million, down from 312.7
million the year before because of an increase in finance costs.
An enterprise value (equity plus debt) of 4 billion pounds
would value the AA at almost 19 times pretax earnings.
Rival RAC, owned by U.S. private equity group Carlyle
, is also considering an IPO this year in a deal that
media reports have said could value the company at 2 billion
pounds. RAC had pretax earnings of 98 million pounds in 2011.
Carlyle has appointed Barclays and Goldman Sachs
to work on the flotation, an industry source said. RAC's
chairman Rob Templeman plans to step down if the company goes
public, the source said, adding recruitment firm Korn Ferry had
been asked to look for a replacement.
($1 = 0.5957 British Pounds)
(Additional reporting by Esha Vaish and Tasim Zahid in
Bangalore; Editing by David Goodman and Mark Potter)