AA/ Saga backers share £2.5bn profit

The three buyout firms behind last week’s merger of UK companies the AA and Saga have moved to address concerns about a lack of transparency by releasing additional financial details of the £6.15 billion deal.

The three private equity firms involved in the recent merger of the AA, a vehicle breakdown service and Saga, an over-50s leisure group, have already realised profits of over £2.5 billion from their investments, according to a statement released by the three in response to critics of the deal.

The unusual move by CVC Capital Partners, Permira and Charterhouse Capital Partners comes after widespread criticism about the lack of detail in the original brief announcement of the deal last week. This reportedly led to a disagreement between the three groups, with the FT suggesting that Permira was pushing for more disclosure.

The statement, released late on Friday evening, reveals that all three firms have made about three and a half times their original investment on the deal – a combined gain of over £2.5 billion. About £1.4 billion of this will be re-invested in the combined business, leaving the three firms with a realised profit of over £1 billion at this stage of the deal. They still own 80 percent of the equity in the combined group, which now has debts of £4.8 billion.

The deal was “an example of three private equity firms choosing to re-commit to the long term growth of two outstanding businesses,” according to the statement.

Permira and CVC both invested about £240 million of equity in the original acquisition of the AA. They then took out £260 million each following a refinancing in March last year. The firms said the AA was now worth £3.35 billion, based on the valuations of IPO advisors and “unsolicited indicative offers received in recent months”, valuing their respective stakes at £630 million – implying a total profit of £650 million each. Both firms are re-investing £380 million for a 21 percent stake in the newly-merged company, leaving them with a realised profit of £220 million each.

The deal has been even more lucrative for Charterhouse, whose stake in Saga is now worth about £1.15 billion. The firm has already taken out £580 million via a refinancing, so its initial investment of just less than £500 million is now worth more than £1.7 billion. The firm will re-invest £640 million for a 38 percent stake, implying a realised profit of more than £600 million.

The statement also revealed that two of the firms are effectively selling their stakes from one fund to another – a controversial process because of the inherent conflict of interest involved in valuation and negotiation. Although Permira is keeping the investment in its third fund, CVC is selling the stake from its third fund, and re-investing from its fourth fund, CVC European Equity Partners IV, and its “CVC Tandem” sidecar vehicle. Charterhouse is also bringing in its latest fund – it originally invested from its sixth fund, but its stake will now be owned partly by its seventh fund, Charterhouse Capital Partners VII. 

The firms insisted that “any involvement of new funds… has been done in full consultation with, and with the full approval of, the relevant investors.”