Having offloaded Saga (AMEX:SGA) just a couple of weeks ago, private equity firms CVC and Permira have decided to cash in again and offload the AA, the UK’s largest breakdown company by selling 69% of the business. As in the case of Saga the issue was oversubscribed with the company valued at £1.4 bn.
Once again it appears that the company’s private equity owners are banking on the AA brands key strengths to cash in on an asset which is rated very highly by the British public. Having been a member of the AA myself for 30 years, and having had to call on their services twice this year I can certainly vouch for a service that is second to none, particularly when you need it the most.
It would seem that investors feel the same way, based on the interest in the issue from small investors, who once again seem destined to miss out on the initial float, with the majority of the shares going to institutional investors. This failure of a lot of small investors to get in early may not be such a bad thing if the early lacklustre performance of Saga’s shares is any guide, as AA’s shares traded slightly lower this morning, below the 250p launch price.
As with most IPO’s so far this year the ability to forensically examine the books of the companies coming to market has sometimes been more akin to a visit to the dentist, quite painful and hard work, and not particularly gratifying.
While this morning’s fall in the share price may be a concern for those looking to make a quick turn the business model of the company appears to be a sound one, with the company’s biggest asset being its staff.
While the breakdown business is the jewel in the crown its insurance businesses are also likely to be key revenue earners going forward as well. How the company performs going forward could well be determined how well the company links up its customers by way of its different product offerings, by cross selling different products between its divisions.
The biggest concern remains the amount of debt on the books, which is nearly £3bn, even after today’s IPO, but with sales of £244m in the third quarter and earnings up over 8% to £104m, this stock appears to be one for the long term investor, which might mean that the shares might fall further in the short term.
The shares start unconditional trading on the 26th June.
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