An invitation to receive Saga magazine is society’s way of reminding you that you’re a lot older than you feel. But the periodical for the over fifties will be less important to a planned £3bn-£4bn float of Saga, a company catering to seniors, than its financial services business. This is well positioned to tap demand from the UK’s ageing population.
The worry of some Saga readers that years have flown by to modest account may be shared by the private equity firms that own it. Charterhouse bought the group from the founding De Haan family for £1.3bn in 2004. Three years later Saga combined with the AA, an investment of CVC and Permira, in a merger that was valued at £6.2bn. A valuation of £8bn-£9bn for the combined business, Acromas, is now mooted in the City. But recent filings show Acromas still has £4.6bn in bank debt, compared with around £5.5bn in 2007.
Moreover, subordinated preference certificates held by staff and former owners of the business have risen in value from around £1.5bn to some £3.4bn. This reflects the payment of interest in the form of new certificates rather than cash.
Returns on ordinary shares may thus be slim, if the whole business is ever sold.
Would-be investors in the Saga float should meanwhile ask why the trio of private equity firms is unpicking the merger. Have synergies between the two businesses proved less compelling than at first appeared?
At least Acromas looks set to disprove the dire predictions of critics of late-cycle leveraged deals. Priced sensibly, Saga should attract buyers.
Private equity owners may have to work harder to offload the AA. The growth prospects of the roadside car fixer are less obvious.
Joint ventures often amount to deferred disposals. One partner can be expected to buy the other out in time. But John Wood Group insists no predestination applies to the gas turbine servicing company it is setting up with Siemens. This JV, which will have sales of $1bn and 4,500 staff, could eventually be bought by either parent, sold to a third party or left as it is.
The combination is “as good as it is going to get”, according to VSA’s Malcolm Graham-Wood. The oil services group, we may surmise, is mashing its turbine-mending assets together with those of Siemens because it could not sell them.
The unit is about one quarter the size of Wood Group’s brownfield division. A profit margin of 7.4 per cent at the half-year stage lagged behind the 12.2 per cent achieved by upstream engineering.
Chief executive Bob Keiller hopes returns will rise because of a closer association with the Munich industrial powerhouse. Wood Group has already spun off businesses servicing rig-based turbines made by other engineers. This move broadens the options of Mr Keiller, whose bigger challenge is to rally upstream earnings growth. The shares, trading on a forward earnings multiple of 12 times, are decent value.
Mixing it at Melrose
It is a historic day when a woman is appointed to an institution whose every move is followed by investors. Not Janet Yellen at the Fed, but Liz Hewitt at Melrose, the adept doer-upper of industrial companies. The non-exec hire leaves just four FTSE 100 groups exposed to broadsides from minister Vince Cable for reserving board jobs for the boys: Antofagasta, Croda, Glencore and Vedanta.
Ms Hewitt’s CV is more convincing than that of some other “golden skirts” (as women appointed partly in the cause of gender balance are apparently known in pioneering Norway). She has put in stints at Gartmore, CVC and 3i. She started in accountancy. Alongside law, the profession promises to supply numerous women directors to businesses in male-dominated sectors such as mining and banking.
Claims that mixed boards improve business performance are as specious as calumnies against the ability of women drivers to parallel park. Instead, mixed boards are one of the accommodations companies make in return for a licence to operate from society.
Melrose, which resembles 1970s conglomerate Hanson in the skill with which it buys, improves and sells companies, has done brilliantly under an all-male team. It has produced a 456 per cent return to shareholders over five years, according to S&P Capital IQ.
Ms Hewitt’s contribution to performance, while welcome, will probably be indistinguishable to investors. Not so Melrose’s eagerly anticipated sale of fittings group Crosby, for an estimated £550m. A consequent payout to shareholders should take Melrose out of the FTSE 100 for a while, and beyond Mr Cable’s censorious gaze.
This article has been amended since original publication to reflect the fact that Saga magazine is not free