Will the AA's 1.4bn pound IPO break down?

IPO WATCH: Sister company Saga's stock market debut may have sagged, but owner Acromas is not deterred and rival RAC may not be either.

by Rachel Savage
Last Updated: 28 Aug 2014

No matter the spate of unhappy IPOs recently, many companies still think the stock market is a goose ripe and ready to lay a large golden egg. Step forward Acromas Holdings, which is driving the AA onto the London Stock Exchange later this month, despite its other (elderly) baby Saga suffering a rather dismal debut as a public company.

The roadside recovery and insurance group is pursuing a £1.385bn fast-track flotation. Bob Mackenzie, the former boss of AA rival Green Flag, has been recruited as executive chairman and nine institutional investors, including Blackrock, Aviva Investors and Invesco, are backing the IPO.

The group, hilariously referred to by the AA as ‘the Cornerstone Investors’, have made ‘binding commitments’ to buy £930m worth of shares. That, the statement said, would leave Acromas with a 31% stake (MT calculated 33% - but what’s a couple of percent between friends?).

However, its private equity owners CVC, Permira and Charterhouse are so keen to get rid of the companies they bought up to form Acromas back in 2007 that they are offering their remaining shares – at the same price of 250p per share - to ‘certain institutional and professional investors’.

Saga, the over-50s insurer and travel company, has had a less than pensionable stock market debut since it started trading two weeks ago. Its offer price of 185p was right at the bottom of its range, but that didn’t stop shares falling as low as 172.5p (although they are up more than 2% to 179p this morning).

Moreover, some potential investors in AA were apparently put off supporting the IPO by its Everest-esque £3bn debt mountain, according to Sky News. With sales of  £973m and ‘trading EBITDA’ of £422.8m in the year to the 31 January, that debt still looks pretty insurmountable, despite the company launching a £350m bond recently and saying £185m of proceeds from the float will mainly go towards paying it down.

You can’t blame the AA’s private equity parents for wanting to get their money back while the IPO market is still simmering. However, that debt pile needs shrinking fast, otherwise investors may just leave the company at the side of the road.

In other road recovery-related IPO news, RAC may also be floated at a value of up to £2bn, sources told The Times. Private equity firm Carlyle bought the AA’s smaller (and, if this report is at all accurate, more valuable) rival for £1bn in 2011 and has reportedly appointed banks to look into a listing (although it could sell privately instead). You know what they say about buses…

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