AA shares fall on listing debut

Shares in UK motoring firm AA Group fell on Monday to 244p in its first day of conditional trading after its £1.4 billion float on the main exchange.

The float was forced through, despite a disappointing stockmarket debut from its sister company Saga, after its former parent organised an accelerated IPO where City institutions act as cornerstone investors and undertake to acquire a substantial number of shares in the listed entity.

The offering, priced at 250p, was oversubscribed and its owners, private equity firms Permira, Charterhouse and CVC sold their entire stake in the company. Part of the £185 million raised will be used to pay down the £3 billion of debt the management team inherited from the company's previous owners.

The institutional investors, which include Aviva, Blackrock, Legal & General, Invesco and Lansdowne Partners, facilitated a management buy-in led by former Green Flag boss Bob MacKenzie, who takes the role of executive chairman.

The management team stands to make as much as £60 million over the next five years if the total shareholder return rises by an average of 12% a year. Mackenzie said he had been running a slide rule over the business for two years.

The 109-year-old roadside recovery service is the UK's biggest motoring organisation, with around 16 million members, for whom it rescues a broken-down vehicle every nine seconds. The firm also sells general insurance and driving lessons.

The firm had earnings before interest, tax, depreciation and amortisation (EBITDA) of £422.8 million in the year to end January. Pretax profit was £214.6 million, down from £312.7 million a year earlier, owing to an increase in finance costs so the diversion of float proceeds to pay down the company's leverage is to be welcomed.

The organisation voted to demutualise in 1999 and was acquired by Centrica for £1.1 billion, and subsequently purchased by private equity forms CVC and Permira for £1.75 billion in October 2004.