Tra­vails of Saga and AA con­tain cau­tion­ary tale of the pit­falls of pri­vate eq­uity own­er­ship

Pri­vate eq­uity own­er­ship has left the AA and Saga bat­tling to cope with Covid head­winds af­ter they were be­queathed a pile of debts ‘The tie-up stands as a stark re­minder of the per­ils of fi­nan­cial engi­neer­ing’

The Daily Telegraph - Business - - Front Page - Ben Mar­low

There are count­less ex­am­ples of big com­pa­nies that have emerged from pri­vate eq­uity own­er­ship in poorer shape than when they were taken over. Deben­hams, Pizza Express, Pets at Home, and As­ton Martin are just some of the house­hold names that con­tinue to count the cost of time spent in the hands of the buy­out bri­gade.

But surely noth­ing can match the fate that has be­fallen one of the in­dus­try’s mar­quee cre­ations. Acro­mas was the point­less name that Char­ter­house, CVC, and Per­mira came up with for the com­bi­na­tion of road­side res­cue out­fit AA and cruise in­surer Saga af­ter the pair were merged in 2007.

It was billed as a land­mark mo­ment: two of Bri­tain’s best-known com­pa­nies brought un­der one roof dur­ing a global deal boom fu­elled by cheap loans and con­crete proof that few com­pa­nies were out of reach while the credit taps re­mained on.

Now, with both the AA and Saga in the process of stitch­ing to­gether sep­a­rate res­cues, the tie-up stands as a stark re­minder of the per­ils of fi­nan­cial engi­neer­ing. The con­sor­tium walked away more than £3bn to the richer af­ter the pair were re­turned to the stock mar­ket as in­de­pen­dent en­ti­ties again in 2014, but the for­tunes of both com­pa­nies have de­te­ri­o­rated rapidly.

Saga’s may­day sig­nal has been an­swered by its founder’s son and the man who sold it to pri­vate eq­uity in the first place. If any­one can re­store it to for­mer glo­ries, surely it is Sir Roger De Haan, who is set for a shock re­turn as part of a £150m rights is­sue.

The en­tre­pre­neur off­loaded Saga to Char­ter­house for £1.4bn in 2004 and has spent the in­ter­ven­ing years spear­head­ing the re­gen­er­a­tion of home town Folke­stone.

He is in­vest­ing around £100m in a share plac­ing for a near-20pc stake and will also be­come chair­man of the com­pany started by his fa­ther, Sid­ney, 70 years ago.

Saga has been bat­tered by the Covid cri­sis. In March, it was forced to can­cel all its cruises but a stronger bal­ance sheet would have en­abled it to ride out the storm, if not en­tirely, then for longer than it has.

The com­pany es­caped rel­a­tively lightly dur­ing its un­cou­pling from the AA, which was left car­ry­ing the bulk of the buy­out fi­nanc­ing.

But at the cost of growth, Saga has still spent the last six years pay­ing down debt and des­per­ately try­ing to mod­ernise af­ter years of un­der­in­vest­ment. The share price has cratered from 185p to less than 18p, leav­ing share­hold­ers, many of them Saga cus­tomers who bought in at the ini­tial pub­lic of­fer­ing, nurs­ing huge losses.

The max­i­mum De Haan will buy in at is 27p per share, a 98pc premium to the 13.6p clos­ing price on Aug 28, as Saga is keen to point out, but an 85pc dis­count to the float price.

The AA mean­while has ba­si­cally given up. Still tow­ing £2.6bn of bor­row­ings but val­ued at less than £200m af­ter an 87pc share price slump, it has hoisted the “for sale” sign. Sal­va­tion awaits from a fa­mil­iar source af­ter three op­por­tunis­tic bids from pri­vate eq­uity land. Acromiss or even Agro­mas would be an ob­vi­ous new name this time around.

Mis­er­able re­peat for ITV

ITV has suf­fered an­other grim day in the FTSE 100 as it faces the ig­nominy of be­ing booted out of the blue-chip in­dex. The broad­caster’s share price tum­bled an­other 6pc yes­ter­day, cap­ping a 60pc fall since the start of the year.

It means ITV has no chance of clos­ing the gap with the rest of the pack as the lat­est quar­terly reshuf­fle is fi­nalised to­day be­fore be­ing im­ple­mented later this month.

The com­pany is now worth just £2.4bn, with Bri­tish Land the next big­gest at £3.3bn, which is likely to fol­low ITV down the es­cape chute. ITV is also now smaller than nearly 40 con­stituents of the wider mid-cap FTSE 250 in­dex.

It is worth just half that of bargain re­tailer B&M Bar­gains, which is head­ing in the other di­rec­tion, and only £100m more than Genus, the biotech firm that spe­cialises in bull and pig se­men.

Mean­while to cap a mis­er­able spell, the share price of Scot­tish mini-me ri­val STV leapt 6pc af­ter ad­ver­tis­ing bounced back sharply in Au­gust. Boss Si­mon Pitts has also taken a de­ci­sive ac­tion to bat­ten down the hatches, rais­ing £16m from share­hold­ers, in­creas­ing its bank fa­cil­i­ties, and rein­ing in costs.

There has been no such re­cov­ery at ITV, which still re­mains hor­ri­bly ex­posed to the va­garies of the ad­ver­tis­ing mar­ket. The broad­caster has suf­fered the steep­est de­cline in its 65 year his­tory. Mean­while, its pro­duc­tion arm has failed to plug the gap be­cause the cri­sis has pre­vented any new film­ing.

This year hit show I’m A Celebrity will be filmed in Gwrych Cas­tle in Wales in­stead of the Aus­tralian jun­gle. Per­haps boss Carolyn McCall will be a con­tes­tant.

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.