Towerbrook and Warburg Pincus set to acquire the AA in £219m deal
Today, the AA has accepted a £219m takeover bid from private equity groups Towerbrook and Warburg Pincus, who will take control of the company on completion of the deal in 2021.
The AA employs more than 7,000 people across the UK, and the deal represents the end of a tumultuous few months for the firm, which has had a series of takeover bids during the lockdown earlier this year.
The takeover bid comes just two days after the AA board indicated that it was willing to accept an offer from the private equity firms – but needed to discuss internally.
Shares rose nearly 7% in early trading following the announcement.
John Leach, AA Chairman, commented: “The AA is a great company with a long and illustrious heritage, a highly respected brand and committed employees providing a high-quality service to its members and customers. In recent years, under new management, the AA has made strong progress with strategic and operational improvements and is demonstrating resilient trading performance through Covid-19.
“On 4 August 2020 we announced that the AA was in discussions with a number of parties in relation to a wide range of potential refinancing options, including the possibility of raising new equity. As a result of these discussions, the AA subsequently received a proposal from the consortium in respect of an all-cash offer for the AA alongside a significant new equity injection.
“Having carefully considered the range of options available to the AA including the terms of the proposed acquisition by the consortium, the AA board has concluded that the acquisition, which offers certain cash value to the AA’s shareholders as well as a significant equity injection to reduce indebtedness, is in the best interests of the AA, its shareholders and wider stakeholders, and as such is unanimously recommending the acquisition to shareholders.”
The TowerBrook and Warburg Pincus Consortium said: “We are delighted that this investment will safeguard the future of a much-loved business. The AA has a proud heritage but has struggled to reach its full growth potential in recent years.
“By deleveraging this fundamentally high-quality organisation, the business will be able to fully capitalise on its iconic brand, its market-leading positions, and its skilled and committed workforce – so that it can continue to deliver the exceptional levels of service it provides to customers across the country. We have no doubt that, on a stronger financial footing, the AA will go from strength to strength, to the benefit of all stakeholders.”
Easy to envisage further cost cutting and sale of insurance business to ease debt
Professor John Colley, Associate Dean of Warwick Business School, said: “The AA group has been around the financing merry go round before with private equity owners and public listings. It was available at a knock down price due to the extent of debt which it had gathered over the years, much of it at the hands of private equity.
“It is a strong brand with good market positions but in very competitive markets, so it is easy to envisage more cost cutting. That does not augur well for the workforce. Private equity usually have a plan and one wonders whether they will sell off the insurance business to realise cash. It is likely they will also issue more shares, as well as restructuring the group’s existing debt.”