Roadside recovery firm AA banks on £218m private equity rescue: Stock crashes 86% since listing
The AA looks set to end its disastrous run on the stock market after bosses said they were prepared to accept a £218m takeover offer from private equity.
Under the deal being discussed, Towerbrook Capital and Warburg Pincus would pay 35p per share to buy the debt-riddled roadside recovery firm.
It amounts to an 86 per cent cut to the company’s share price since its float in 2014, when it was valued at 250p per share or £1.4billion.
But in exchange, the two buyers have pledged to pump in £380m of emergency cash to help tackle the AA’s crippling £2.7billion debt pile.
It is thought that Rick Haythornthwaite, former chairman of British Gas-owner Centrica, could also be parachuted in as chairman after the potential deal.
The AA said Towerbrook and Warburg Pincus had not yet made a formal offer and talks were continuing ahead of a ‘put up or shut up’ deadline at 5pm today.
But it added: ‘The board, having considered carefully the viability of a range of alternative potential options together with its financial advisers, has indicated that it would be willing to recommend a cash offer on the terms of the proposal.’
The takeover by Towerbrook and Warburg Pincus would bring to an end the AA’s six-year stint on the stock market and return it to private equity ownership.
The AA was founded in 1905 as the Automobile Association, with just 100 motoring enthusiasts as members. It demutualised in 1999 and has since grown to provide breakdown cover and insurance services to some 15m members.
In 2004 it was bought by private equity firms CVC and Permira, which slashed costs by axing nearly 3,000 jobs and cutting 600 patrols, and the firm was merged with over-50s holiday and insurance provider Saga in 2007.
The breakdown company was floated on the stock market in 2014, winning backing from retail investors who were keen to support a household name.
It has bet in recent years on selling motorists technology that can track faults in their cars, while offering an increasing range of financial services. But the company has remained saddled with £3billion of debts largely racked up during its years under private equity ownership and its shares have tanked 86 per cent since its debut.
Cliff Weight, director of small shareholders campaign group ShareSoc, said the AA’s performance would raise further questions about private equity-backed floats in future.
He said: ‘In 2014 the private equity firms decided that they were better off selling the AA rather than holding on to it, after loading it up with almost £3bn in debts. It was floated with all the encouragement of the financial services industry and investment bankers. What has followed is another sorry tale, that echoes similar experiences with Saga and Aston Martin.
‘Investors have endured six years of pain – during which £1.2billion of value has just evaporated. It is because of these sorts of experiences that the private equity industry is going to find it more difficult to attract investors for these companies in future.’
In 2017 executive chairman Bob Mackenzie was sacked following a fight in a hotel bar where a meeting had been taking place.
He was replaced by chief executive Simon Breakwell, who wants to tackle the debts by either issuing shares or going back into private ownership.
The AA received takeover approaches from Centerbridge Partners and Towerbrook, Platinum Equity and Warburg Pincus in August.
But when Centerbridge Partners dropped out, Towerbrook joined forces with New York-based Warburg Pincus.