Shares in AA stuck in slow lane after £1.4bn float

The AA was valued at £1.4 billion yesterday when it joined the stock market but went on to endure the same lacklustre debut as former sister company Saga.

The motoring organisation, which has four million members, priced its shares at 250p in a flotation

The motoring organisation, which has four million members, priced its shares at 250p in a flotation which has led to the exit of its private equity owners and allowed the company to raise £184.7 million.

Control of the business has passed to a management buy-in team led by former Green Flag boss Bob Mackenzie and backed by institutional investors including Aviva and Legal & General.

In conditional dealings, the stock fell as low as 229p in a performance echoing last month’s sale of shares in over-50s holidays and insurance company Saga, which was also part of Acromas Holdings.

They closed at 232p, down 18p or 7 per cent on the offer price.

Saga and the AA were combined in a £6.2bn deal at the height of the credit boom in 2007 to form Acromas, owned by private equity firms CVC, Permira, and Charterhouse. The business was funded by £4.8bn of bank debt.

Saga recently began trading on the London stock market with a value of around £2bn but shares are 15p lower than their opening price of 185p, having earlier been priced at the bottom end of expectations.

The AA offer was oversubscribed, allowing Acromas to sell all of its holding and the company to raise funds towards reducing its £3bn debt pile.

AA chief executive Chris Jansen, pictured, said: “We are delighted that we have seen such strong demand for shares in AA plc.

“It is no doubt driven by a combination of the core strengths of the business and the expectation of what we can do with the business in the future.”

Jansen added: “Everyone at the AA is delighted that we will soon be a public company and we are all looking forward to the next chapter in our 109-year history.”

More UK companies are seeking to list on the London stock market this year, and investors have become increasingly choosy about which companies they back and the prices they are willing to pay in recent weeks.

The AA is the UK’s biggest motoring organisation and roadside recovery service, with around 16 million customers. It also offers motor and home insurance and operates a driving school.

The firm, which says it rescues a broken-down vehicle every nine seconds, had earnings before interest, tax, depreciation and amortisation (EBITDA) of £422.8m in the year to 30 January. Pretax profit was £214.6m, down from £312.7m a year earlier because of an increase in 
finance costs.

Proceeds from UK IPOs more than tripled in the year to date, with over £5bn raised across 33 listings.

A number of other private equity-backed companies have struggled after their market debuts. Spanish travel agency eDreams Odigeo, part-owned by Permira and Ardian, has lost almost 40 per cent since its April listing, while Charterhouse’s Card Factory has lost nearly 8 per cent.

Mackenzie, who has become the AA’s executive chairman as part of the flotation move, yesterday said London was “still a fantastic place to raise money”.