US investment firm Stonepeak has snapped up a £450m stake in the AA – in a deal valuing the roadside recovery firm at £4bn (€4.6bn), writes Leah Montebello.
It comes nearly three years after the then debt-ridden company was swallowed up by private equity firms Warburg Pincus and Towerbrook and gives Stonepeak a 15pc holding in the group.
The 2021 deal saw it taken off the stock market at a price of just £219m.
But it reportedly valued the AA at around £2.8bn when its debt pile was included.
AA Ireland was originally part of the AA but was sold to an American investment group, Carlyle Cardinal Ireland (CCI) in August 2016.
Warburg Pincus and Towerbrook will remain the majority shareholders following the latest transaction.
Stonepeak, which manages a portfolio worth £45bn and specialises in infrastructure projects, will become the next-largest shareholder.
It marks the latest episode in the chequered ownership history of the Automobile Association.
Founded in 1905, the company’s fleet of yellow-liveried vans have since become a familiar fixture on Britain’s roads.
The AA, which also has an insurance business, has been on the road to recovery after being plagued by high levels of borrowing under its previous private equity owners.
And since leaving the London market in 2021, the company has focused its efforts on driving profitability and paying down its debts.
This has meant shaking up its management team, including recruiting Jakob Pfaudler, a former Lloyds Bank executive, as its chief executive.
Pfaudler said that the company will use the fresh investment from Stonepeak to shrink its debt pile, which is around £2.3bn.
He added: “We have strong momentum, having recently reported positive revenue, profit and customer growth, and we are excited about the future prospects of the business.”
Nikolaus Woloszczuk, Stonepeak senior managing director, said the New York-based group was “delighted” by the investment in an “essential piece of the UK’s transport system.”
The deal is expected to close in the first half of 2024.
The move to bring in a third major shareholder at the AA mirrors a similar deal struck by the RAC, its closest UK rival.
RAC owners CVC Capital Partners and the Singaporean state fund GIC called in private equity firm Silver Lake as another major investor in 2021.
This pumped fresh cash into the business and helped to expand its breakdown and insurance arms.
The AA began life 118 years ago as the Motorists’ Mutual Association, which aimed to champion car drivers.
It later expanded, passing 100,000 members in 1934 and topping a million in 1950.
But the last two decades have seen stewardship of the organisation passed between a number of corporate owners, including British Gas parent Centrica.
Later, it was paired with over- 50s travel and insurance firm Saga under the umbrella of private equity-owned Acromas.
It was then spun out again as a stand-alone company and listed in London in 2014, at 250p a share. The private equity firms CVC, Permira and Charterhouse made £1.2bn in the float.
But shares fell as low as 15p before it was taken private again in March 2021 by Warburg Pincus and Towerbrook.
Today, it has 14m members and attends an average of 9,400 breakdowns every day. It also operates the largest driving school business in the UK.
The AA saw profits slump £40m to £23m in the six months to the end of July, while revenues rose 10pc to £625m on the back of higher membership numbers and more insurance customers.
It said its insurance business had experienced “strong price inflation”, which it had been forced to pass through to customers at higher prices.
There has been some speculation that the AA could separate its breakdown recovery and insurance arms, but no plans have been put in motion.
Photo: AA van. (Getty)
