The AA’s Future Plans

The owners of the AA, Great Britain’s largest breakdown recovery service, are set to appoint bankers to explore a potential sale or stock market listing next year, which could value the company at over £4 billion.

Background

The AA, with more than 16 million customers, including 3.3 million individual members, is jointly owned by three private equity companies: Towerbrook Capital Partners, Warburg Pincus, and Stonepeak. Insiders say that any corporate transaction involving the AA is not imminent and may not take place for at least 12 months, with no fixed schedule and a potential deal possibly happening after 2026.

Strategic Review

The appointment of consultants, likely to be JP Morgan and Rothschild, underlines the newfound confidence of the shareholders in the company’s prospects, following four consecutive years of growth in customer numbers, sales, and profit. A strategic review of the AA’s options is likely to include a full sale, listing on the public markets, or the sale of a further stake to minority investors.

Investment and Valuation

Stonepeak invested £450 million in the AA in a transaction completed in July last year, valuing the company at around £4 billion, including debt. Given the company’s growth and the valuation at which Stonepeak invested, a future transaction would likely take place at a price of less than £4.5 billion.

Debt and Financials

The AA, which has a large insurance division and a roadside services section, is still burdened with a significant, albeit declining, debt burden. The company recently announced that it had £1.9 billion of net debt, which it is gradually paying off as it becomes more profitable.

History of Ownership

The AA has had several owners over the past 25 years, including Centrica, CVC Capital Partners, and Permira. The company was listed on the London Stock Exchange in 2014 but was taken private again almost seven years later, with its shares having lost over 85% of their value since flotation.

Business Operations

The AA, which describes itself as the "fourth emergency service," competes with the RAC for market share in the breakdown recovery sector. The company was founded in 1905 and has a long history of providing roadside services, with over 2,700 patrols on the roads of Great Britain. The AA also operates the largest driving school in the UK, as part of the AA and BSM brands.

Future Plans

The company has considered selling its insurance arm in the past but has not acted on it. The recruitment of a third major shareholder, Stonepeak, reflects a similar deal made by the RAC, which brought in the technology-oriented private equity company Silver Lake as a major investor.