AA's private equity owners speed to exit with sale and IPO

Reuters

* 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 (Reuters) - 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 billion).

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 listing.

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 investors.

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 Lansdowne Partners.

"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 year.

The AA will offer up to 554 million new and existing shares in its flotation, it said, without breaking out exactly how many of each.

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.

RAC

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)

Rates

View Comments (0)