AA IPO: Shares fall in disappointing debut
iNVEZZ.com, Tuesday, June 24: Shares in the AA plunged 7.2 percent during their stock market debut yesterday. Investors who bought £1.385 billion worth of company shares, priced at 250p, suffered immediate paper losses of £97 million as the shares closed at 232p.
“Private equity firms are ignoring the golden rule of flotations, that everyone has to leave the party with a balloon,” Andy Brough, fund manager at Schroders, commented on AA’s first day of trading. “People who have bought Saga and AA have not got a balloon.”
The AA’s performance is another setback for owner Acromas after the lacklustre IPO of Saga (LON: SAGA) last month. Acromas was unable to sell its shares in the over 50s insurer after it failed to generate sufficient institutional investor interest in the flotation.
Two weeks ago it was announced that Acromas had received binding offers of £930m from 11 cornerstone investors for a 69 percent stake in the AA. The remaining 31 percent was eventually sold to a group of new investors. They share price was set at 250p, valuing the breakdown cover provider at £1.39 billion.
The AA’s accelerated IPO included the issuance of 85 million new shares, in addition to the existing 469 million. The company raised £185 million from the sale of the new shares which will be used to reduce its £3 billion debt. The flotation enabled Acromas to sell its entire stake in the business.
**Change in leadership**
The AA’s IPO marks a change in the company’s leadership with Bob Mackenzie and Chris Jansen taking over as executive chairman and CEO, respectively.
“We’re more interested in what happens when unconditional trading begins on Thursday,” said Mackenzie after the company’s disappointing performance yesterday.
Under an agreed pay deal, Mackenzie and the other board members will share 40 percent of a potential multimillion payout depending on whether the AA succeeds in increasing its total shareholder return by 12 percent a year, on average, for the next five years. The remaining 60 percent will be split between a group of senior managers, including Jansen. Inside sources have told the Financial Times that the executives could make up to £60 million if the targets are met.
Despite the fall in the AA’s share price , CEO Chris Jansen said demand for shares was “no doubt driven by a combination of the core strengths of the business and the expectation of what we can do with the business in the future.”
According to The Guardian, Jansen said that the AA was the UK’s most trusted brand and that its services could be significantly expanded by improving the company website, adding apps, and offering customers more benefits.
Executive director Nick Hewitt said that the new company strategy would be focused on improving services to the large number of existing customers rather than attracting new ones. “People spend £60bn a year running their vehicles and that doesn’t include buying them or petrol,” he added. “We currently have a 1 percent share of that. I think we can give much better value to our customers.”
Unconditional trading for the AA begins this Thursday.
Are you looking for fast-news, hot-tips and market analysis? Sign-up for the Invezz newsletter, today.