In a bold move that could reshape the landscape of roadside recovery services in the UK, the AA, which stands as the largest provider in this sector, is contemplating an impressive sale or a stock market flotation potentially valued at £5 billion. Meanwhile, the RAC, its main competitor, is also setting its sights on a London listing with a similar valuation.
The AA, renowned for its extensive range of services including roadside assistance, insurance coverage, and driving lessons, is currently under the ownership of a consortium that includes TowerBrook Capital Partners, Warburg Pincus, and Stonepeak. Reports indicate that these private equity firms have begun to explore potential buyers, a development first highlighted by the Financial Times.
This consortium appears to be valuing the AA at £5 billion or even higher. Additionally, they are contemplating the idea of re-listing the company on the London stock exchange, marking a decade since it was previously floated by earlier private equity owners. However, it’s important to note that these plans are still in their infancy and may evolve over time.
On a parallel track, the RAC's owners, which include the Jersey-based private equity firm CVC Capital Partners alongside Singapore's GIC investment fund and the US-based Silver Lake Partners, are actively pursuing a stock market listing aiming for a valuation of approximately £5 billion. Although a sale remains a possibility, insiders suggest that an initial public offering (IPO) is more likely to occur.
Founded in 1905, the AA was privatised in 2020 after a £219 million takeover led by TowerBrook and Warburg Pincus. This transition followed a challenging six-year period when the organization was publicly traded. Prior to going private, the AA had a rocky experience in the stock market, particularly following its flotation in 2014 at a share price of 250 pence, which initially valued the company at £1.4 billion. The floatation proved lucrative for CVC, Permira, and Charterhouse, who collectively made £1.2 billion from the initial offering. However, the company's shares plummeted to a low of 15 pence by 2020 as concerns about its substantial debt of £2.6 billion intensified.
Since then, the AA claims to have undergone significant transformations, reducing its debts to £1.9 billion, which is now 4.1 times its earnings—an improvement compared to the 6.7 times ratio when it was publicly listed. With a customer base of 17 million, the AA reported revenues of £623 million in the first half of the year, reflecting a 5% increase. Additionally, its profit before tax rose by 54% to £50 million, largely due to decreased financing costs, while underlying earnings climbed 8% to £243 million.
In comparison, the RAC, which boasts 15 million members—up from 14.1 million last year—also experienced growth. Its revenues increased by 8% to reach £411 million in the first half of the year, with underlying earnings rising by 12% to £152 million. The 128-year-old RAC expressed confidence in its performance outlook for the current year and beyond as of August.
Despite the significant developments for both companies, representatives from the AA, RAC, TowerBrook, Warburg Pincus, CVC, and Stonepeak have chosen not to comment on these matters, leaving room for speculation and curiosity regarding the outcomes of these potential financial maneuvers.
