Five years after privatizing the debt-ridden roadside assistance group, the AA has appointed advisers to explore a possible sale or IPO as rival RAC also considers a return to public markets.
The AA, which is owned by private equity firms Warburg Pincus, TowerBrook Capital Partners and Stonepeak, has appointed JP Morgan and Rothschild to consider strategic options for the company, which is valued at around £5bn. The process is believed to be at an early stage.
The move comes as the RAC’s backers are also exploring options including a possible listing in London as early as next year, which could provide a rare boost to the U.K.’s subdued IPO market.
Warburg Pincus, TowerBrook, Stonepeak, the AA and JP Morgan declined to comment. Rothschild has been contacted for comment.
The AA was founded in 1905 as the Automobile Association and was owned by its members until its demutualization in 1999. Its time as a publicly traded company proved turbulent, largely due to heavy debts accumulated by previous private equity owners CVC and Permira, which acquired the company in 2004.
The AA traded at 250p per share in 2014, with the price peaking at 416p the following year before collapsing. In 2021 it was taken private by TowerBrook and Warburg Pincus for just 35p per share.
The group also experienced management turmoil, most notably in 2017 when its chief executive Bob Mackenzie was fired after a physical altercation with another director at a company outing. Mackenzie later said the incident was stress-related.
Today the AA serves around 17 million customers. For the six months to the end of July, the company reported sales of £621m, up 6 per cent on the previous year, and pre-tax profits of £60m, compared with £39m a year earlier.
What is crucial for potential investors is that the company has significantly reduced its debt ratio. Net debt has fallen to 4.1 times earnings, down from 7.6 times just before privatization, putting it on track to meet the sub-four target.
Jakob Pfaudler, chief executive of the AA, said earlier this year that the group was entering a new phase and shifting its focus “from transformation to acceleration.”
At the same time, RAC, which is owned by CVC Capital Partners alongside GIC and Singapore’s Silver Lake Partners, is said to be exploring a possible IPO and is also aiming for a valuation of around £5 billion. Selling to another buyer remains an alternative option.
An IPO for RAC would be a welcome development for the London market, which has struggled with a lack of new listings and a wave of takeovers in recent years. GIC and Silver Lake declined to comment, while CVC was contacted for comment.
Founded in 1897, RAC is one of the oldest roadside assistance providers in the world and has around 15 million customers. The company reported first-half sales of £411m, up 8 per cent, and profit before tax of £62m, up from £57m a year earlier.
Net debt stood at 4.6 times adjusted earnings at the end of June, down from 5.4 times a year earlier, reflecting a similar deleveraging trend to the AA.
The RAC was sold by Aviva to buyout firm Carlyle for £1bn in 2011, underlining that both of Britain’s best-known car companies have changed hands repeatedly – and are now potentially facing another change of ownership.
