News Column

AA shares get off to slow start in flotation

June 24, 2014

Sean Farrell,

AA's shares fell on their first day of trading after the breakdown service's private equity owners sold the business for nearly 1.2bn.

Shares in the AA dropped more than 3% in early conditional dealing, taking the shine off a deal that saw its owners sell their entire stake. After floating at 250p, the shares dropped to 231p but staged a partial recovery to trade at 241.75p.

A group of private equity firms, operating as Acromas, sold their 100% holding in the AA to City investors for 1.18bn. The AA sold 202m of new shares, leaving it with 185m after fees to advisers on the deal.

Acromas announced two weeks ago that it had lined up bid commitments of 930m in advance from "cornerstone" investors to buy 69% of the company. The agreement was effectively a takeover of the century-old company by the investors, who installed their own management team.

Acromas then marketed the rest of its stake to other investors who bought at the 250p offer price, valuing the AA at 1.39bn. The company has about 3bn of debt.

Acromas is owned by buyout firms CVC, Permira and Charterhouse. It had originally planned an initial public offering of the AA together with its other business, Saga, the over-50s holiday and insurance company.

Saga floated separately last month.Acromas was forced to cut the offer price as investor demand for newly listed shares waned. It had already scrapped a flotation of both companies in 2010.

The AA flotation is based on a "management buy-in" that transplants a new leadership team into the company. The initial investors, including Aviva, Invesco and Legal & General, backed Bob Mackenzie, the vehicle services veteran who becomes executive chairman.

Mackenzie said: "We are delighted to have secured 1.4bn to acquire the AA, with our financial backing coming from many leading UK institutions. We will work with the existing management and the AA's loyal workforce to deliver an enhanced experience for all our members and customers, and to serve the broader needs of the UK motorist."

Mackenzie, a former boss of AA's smaller rival Green Flag, and his team will work alongside Chris Jansen, who took over as chief executive at the start of the year from British Gas.

Under an agreed pay deal, Mackenzie and two other board members, Martin Clarke and Nick Hewitt, will share 40% of a potential 50m payout depending on the AA's performance. Another 60% will be allocated to a group of senior managers, including Jansen.

The AA was founded as the Automobile Association in 1905 and was mutually owned until 1999. It claims to provide an average of 10,000 breakdown services to motorists each day and also sells insurance and driving lessons.

Unconditional dealing in AA shares will start on 26 June.

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Source: Guardian Web

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