Britax avoids crash - as Saga/AA losses soar

A tale of two private equity deals: Saga & AA's losses top £500m, but Britax is booming...

Last Updated: 06 Nov 2012
There's been much condemnation of the mega-bucks private equity deals completed at the height of the industry's boom a few years back. And we have a stark illustration of the risks involved on today's business pages: Acromas, the company formed from the merger of motoring services business the AA and golden oldies services business Saga, has apparently just reported losses of £529m, thanks largely to the interest payments on its massive debt pile. But it's a very different story at Britax, the car-seat maker: it's about to generate a pile of cash for its private equity owner after strong growth during the recession. So we need to be careful not to throw the baby (seat) out with the bathwater...
Saga and the AA might not look like natural bedfellows, but the rationale behind the deal - announced in mid-2007 - was to create a giant services company combining two of the UK's most famous brands, with opportunities to cross-sell services between the two. Or at least, that was the party line peddled by the company's management and its three private quity backers, Charterhouse, Permira and CVC. The alternative explanation, favoured by the AA's recalcitrant unions, was that this was a tawdry private equity stitch-up designed to massively enrich the senior people concerned while loading huge amounts of debt onto the two firms. So even at the time, this was a pretty controversial deal.
Fast forward three years, and it looks at first sight as if the nay-sayers have been proved right. The company is still trading well – revenues were up, boosting operating profit to £183m in the year to January 31 (which won't make it easier to enforce a new pay deal at the AA). But this was more than wiped out by the £700m+ in interest it's now paying on its £6.3bn debt - resulting in the group losing more than half a billion pounds over the year. It also had to borrow yet more money to pay off some of this interest. With the stock market very sceptical about debt-ridden PE disposals at the moment, that may well have scuppered the group's supposed plans to float this year.
A much happier private equity tale, however, comes from Britax Childcare, the London-based car seat maker. Apparently its owner, US PE firm Carlyle, has just put the company up for sale and looks set for a big return on its investment: sales soared from £120m to £183m between 2004 and 2008, while it's also added several hundred jobs during the period. So PE ownership doesn't have to be a bad thing. A few dodgy, over-leveraged deals shouldn't blind us to that fact.

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