AA set for stock market flotation

Updated: 

AA van

The AA is poised for a £1.4 billion stock market flotation that will see control of the UK's biggest roadside recovery firm pass to a group of City investors.

The business, which was founded in 1905 and has four million members, is currently owned by Acromas Holdings, the private equity-backed firm behind the recent sale of shares in over-50s holidays and insurance company Saga.

Unlike the flotation of Saga, which involved retail investors, City institutions such as Aviva, Blackrock and Invesco will buy shares worth at least £930 million as part of a management buy-in fronted by former Green Flag boss Bob Mackenzie as executive chairman.

Trading in AA shares is expected to commence later this month and value the company, which has an estimated 40% market share, at £1.38 billion.

Mr Mackenzie said: "The AA is a very successful organisation with a strong record of serving its members and the needs of the UK motorist.

"We believe there are significant opportunities to grow the business, a sentiment shared by the high-quality leading cornerstone investing institutions who have already committed over £930 million to the transaction."

Saga and the AA were combined in a £6.2 billion deal at the height of the credit boom in 2007 to form Acromas, owned by private equity firms CVC, Permira, and Charterhouse. The business was funded by £4.8 billion of bank debt.

Saga recently began trading on the London stock market with a value of around £2 billion but shares are 10p lower than their opening price of 185p, having earlier been priced at the bottom end of expectations.

The float saw 50% of the stock on offer allocated to retail investors, a "substantial majority" of them to customers.

Mr Mackenzie pledged to "steadily reduce" the AA's debt mountain, which currently stands at around £3 billion.

As part of the offer, the company will issue £210 million of new shares, with the proceeds going towards the drive to cut borrowings. Acromas will retain an approximate 31% shareholding in the AA but has agreed to make its remaining stake available to new investors at the same valuation.

The AA has around 16 million customers with an estimated 50% of UK households subscribing to at least one AA product.

The roadside assistance division accounts for more than 70% of total sales, having achieved revenues of £697.6 million in the year to January.

The AA also sells motor and home insurance and owns AA Driving School and the British School of Motoring - the two largest driving schools in the UK.