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’
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.