Financial News

  • 12 June 2014, 9:13

Fund Manager Woodford Backs 1.4bn AA Float

Neil Woodford, the City's best-known fund manager, is to back the 1.4bn flotation of the AA, the breakdown recovery service.

Sky News understands that Woodford Investment Management is to make a "material" commitment to buying shares in the AA, which confirmed plans to support a management buy-in last week.

Mr Woodford's investment has yet to be finalised but if it is, it would make his new firm an investor alongside Invesco, his former employer.

Other fund managers backing the AA's flotation include Aviva Investors, Blackrock, JP Morgan Asset Management and Lansdowne Partners.

Acromas, the AA's parent, announced the listing plans last Friday following Sky News' disclosure of the deal.

Bob MacKenzie, a former boss of Green Flag, the car insurance provider, has been lined up to act as the company's new chairman, they added.

Acromas is a private equity-backed group which continues to own a majority stake in Saga, the financial services and travel specialist for the over 50s.

Shares in Saga have disappointed since listing last month.

Some institutions approached by Cenkos about participating in the AA deal were deterred by the motor insurer's 3bn debt mountain, which they believed was inappropriately high for a public company.

The AA, which generates hundreds of millions of pounds of free cashflow every year, outlined a plan for paying down its borrowings as part of its announcement last week.

The roadside recovery group should make its public debut by the end of the month, completing a change of ownership for one of the UK's biggest membership organisations.

Acromas has been expected to retain ownership of the AA for some time, given the scale of its borrowings relative to its earnings.

In the third quarter of last year, the AA reported sales of 244m, with earnings up 8.2% to 104m.

It has taken advantage of strong financing markets by launching a 350m bond, the proceeds of which are being used to repay a chunk of Acromas's vast debt-pile.

The AA, which has styled itself as "the fourth emergency service", has four million personal members and nine million business customers, giving it a 40% share of the roadside insurance market.

Like Saga, the AA has turned to new leadership, appointing Chris Jansen, a former British Gas executive, as its new boss.

Acromas is owned by Charterhouse, CVC Capital and Permira, three of the UK's biggest private equity groups. They acquired the AA from Centrica, the owner of British Gas nearly a decade ago, before putting it under the same corporate ownership as Saga.

The AA's principal rival, the RAC, is also racing towards the stock market, with Carlyle, its private equity owner, working on plans for a listing.

Barclays and Goldman Sachs are leading the RAC float with Citi and JP Morgan also drafted in.

Mr Woodford and the AA declined to comment.

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