May 2, 2014 5:16 pm

AA and RAC buyout groups consider stake sales

RAC van

The UK’s two largest road assistance specialists could change hands this year as the private equity owners of the AA and the Royal Automobile Club consider selling their stakes in the companies.

Carlyle, the RAC’s controlling shareholder, has invited bankers to compete later this month for a mandate to advise on a possible initial public offering of the business, three people with knowledge of the decision said. It has already hired Lazard to evaluate all options including a sale of the UK’s second largest road recovery company.

A transaction is expected to take place in the second half of this year.

Disposal plans for RAC coincide with talks over a sale of the AA, the company’s larger rival owned by Permira, Charterhouse and CVC Capital Partners. The buyout houses have received approaches for the business, which could be put up for sale after its split with Saga, the insurer-to-travel group for the elderly that has announced its intention to float this week.

The moves come as the pace of dealmaking in Europe is accelerating amid increasing investor confidence in the region’s economic recovery. Buoyant stock markets have revived initial public offerings, prompting private equity groups to float their portfolio companies and allowing them to make handsome profit on investments done before the financial crisis.

Meanwhile, the same private equity groups are back seeking new deals after raising fresh funds.

Carlyle bought the RAC from British insurer Aviva less than three years ago, funding the £1bn deal with a combination of its own cash and bank debt. The RAC’s profits have since increased, enabling its buyout owner to add more loans to the company to fund two dividends – in techniques known as dividend recapitalisations.

Carlyle is expected to achieve a valuation in excess of £1.6bn including debt for the company, which generated earnings before interest, taxes, depreciation and amortisation of about £150m.

The RAC was founded in 1897 to support the nascent motoring industry in Britain, and used to include the eponymous private members’ club in Mayfair, London, with its period architecture and ornate swimming pool. Clayton Dubilier & Rice, BC Partners and Bain Capital, had all vied for the company when it was put up for sale in 2011.

Meanwhile, London investment boutique Cenkos is rallying interest from a dozen institutional investors to buy the AA from its private equity owners, in an accelerated offering expected to value the company at more than €4bn, including debt. Formal talks could start soon after Saga’s listing.

Acromas, the holding company that owns the AA and Saga, said in March that the offer from Cenkos was one among several approaches it has received for the AA since refinancing about £3bn of the company’s debt last year.

Permira, CVC and Charterhouse would welcome an exit from an investment they have held for seven years. In 2007, they combined Saga and the AA in a £6.2bn transaction.

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