Investors Line Up To Back £4bn AA Listing

By Mark Kleinman, City Editor

A powerful group of City investors is lining up to back a £4bn-plus deal that would entail a change of ownership for the AA, Britain's biggest roadside recovery group.

Sky News can reveal that Cenkos Securities, a London-based investment bank, has tabled a proposal to the AA's parent company for it to list on the London Stock Exchange.

The offer, which has been made in recent days, would resurrect a technique known as an accelerated initial public offering (IPO), which gained traction more than a decade ago but which has only been used infrequently in recent years.

Sources close to the situation said that Cenkos had approached major institutional investors including Aviva, BlackRock, F&C Investments, JP Morgan Asset Management and Threadneedle about a transaction that would involve them acquiring stakes in the AA through a new stock market-listed company.

It is not clear which of the firms has formally committed funds to the bid yet.

The AA is part of Acromas Holdings, a private equity-backed group which also owns Saga, the financial services and travel specialist for the over-50s which is pursuing its own £3bn flotation.

The Cenkos-led proposal for the AA was not solicited by Acromas and it is unclear whether it is likely to be formally considered by the company's current owner given its focus on Saga's listing.

Acromas has been expected to retain ownership of the AA for some time, given the scale of its borrowings relative to its earnings.

The AA has net debt of about £3.2bn, putting its borrowings on a multiple of 7.6 times the level of its earnings before interest, tax, depreciation and amortisation.

In the third quarter of last year, the AA reported sales of £244m, with earnings up 8.2% to £104m.

The AA, which has styled itself as "the fourth emergency service", has 4m personal members and 9m business customers, giving it a 40% share of the roadside insurance market.

Some City observers believe that a separate listing of the breakdown recovery group may be difficult because of its debts and a financial mechanism known as a whole business securitisation that was undertaken last year.

The accelerated IPO was first used in the City more than a decade ago by Collins Stewart, the investment bank which a group of Cenkos executives left to set up.

The technique involves a more rapid listing process during which the sponsoring investment bank agrees to buy the shares before selling them on to other investors.

Like Saga, the AA has turned to new leadership, appointing Chris Jansen, a former British Gas executive, as its new boss.

The AA has taken advantage of strong financing markets by launching a £350m bond, the proceeds of which are being used to repay a chunk of Acromas's vast debt-pile.

Acromas is owned by Charterhouse, CVC Capital and Permira, three of the UK's biggest private equity groups, which acquired the AA from Centrica, the owner of British Gas.

The AA's principal rival, the RAC, is also expected to be the subject of a change of ownership in the next couple of years, with Carlyle, its private equity owner, likely to seek a stock market listing for the company.

Sky News disclosed on Thursday that Acromas is close to hiring Goldman Sachs and at least three other banks to work on a flotation that will put Saga on course for inclusion in the FTSE-100 index.

As many as half of the shares on offer, equating to hundreds of millions of pounds, could be sold to ordinary retail investors, meaning Saga is likely to vie with Royal Mail's privatisation for the status of the City's biggest retail offering for years.

A sale of part of the Government's remaining stake in Lloyds Banking Group, expected this year, will include a retail offering that will dwarf those of Saga and Royal Mail.

Cenkos and Acromas declined to comment.

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