iNVEZZ.com, Monday, June 9: The British motoring association AA announced its intention to float on the London Stock Exchange in a statement on Friday. The listing of the car insurance and breakdown cover provider is expected to take place in the second half of June, valuing the company at approximately £1.385 billion.
The Automobile Association was founded in 1905 and became part of Acromas Holdings when it merged with SAGA seven years ago in a £6.2 billion deal.
SAGA’s recent float has so far been a big disappointment for investors, which has raised doubts about the likelihood of a successful IPO for the AA. Despite shares in the over 50s insurer being priced at the bottom of the expected IPO range, they are currently trading below that level, frustrating those who were hoping for an immediate profit. (Saga IPO: Shares commence trading amid fears of investor fatigues) AA’s £3 billion debt might also deter some potential investors.
The AA IPO plan
Permira, Charterhouse and CVC, the private equity owners of Acromas have agreed to sell a 69 percent stake in the company to 11 cornerstone investors. The list includes Aviva, Blackrock, CRMC, GLG Partners, Henderson Global, Henderson Volantis, Invesco, L&G and Lansdowne Partners. They will acquire the shares for 250 pence each, for a total of £930 million.
Acromas will make its remaining stake available to new investors at the same 250p share price. In addition, it is expected to issue approximately £210 million of new shares. The shares will be sold in an accelerated bookbuild, taking the company straight to the market.
The AA’s £3 billion debt and its sister company’s recent lacklustre IPO are the strongest impediments to the company’s upcoming IPO. However, many investors are positive, acknowledging the fact that the AA is the largest motoring association in the UK. The roadside rescue firm is a highly cash generative business and its large number of membership fees is a recurring source of income.
“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,” said Bob Mackenzie, AA’s Executive Chairman in last week’s statement.
The AA is not the only company in the industry with IPO aspirations this year. Competitor RAC is also considering a float. However, its plans are less advanced than the AA’s, and private equity owner Carlyle will have to hope investors remain interested in the business after the AA listing.