AA casts doubt on disclosure theory

The example of the AA, where buyout firm Permira has actually improved the level of disclosure since taking the company private, suggests that the latest transparency initiative may not solve the industry’s woes.

An analysis of the recent reports of the AA, a vehicle breakdown service owned by UK buyout firm Permira, suggests that the latest attempts by the industry to improve transparency may not resolve its ongoing public relations problem.

Trade union protests over the AA have sparked much of the recent controversy over the private equity industry’s record on transparency and job creation. However, the AA’s annual report for 2006 – its second full year as a privately owned company – discloses far more information about the company than had been previously available under Centrica, the utilities firm that sold the AA to Permira and CVC in June 2004.

This suggests that improved transparency may not be enough to cure the industry’s recent woes.

Under the ownership of Centrica, information on the AA was limited to about two pages of the group’s 2003 annual report. Although the report gave some headline performance numbers on the AA’s various divisions, most of the financial information was subsumed into the overall group figures, providing little transparency on the financial state of the AA.

By way of comparison, in 2006 Permira and CVC produced a 56-page report providing detailed information on all aspects of the AA’s performance. The report includes statements from the chairman, chief executive, finance director, statutory director, and an independent auditor, plus financial statements including a consolidated profit and loss account, balance sheet, and cash flow statement.

Yesterday more than 20 UK buyout firms came together to back a new working group, following accusations of a lack of transparency from trade unions, politicians and industry commentators. The group, which will operate under the aegis of the BVCA and be chaired by Sir David Walker, will produce a voluntary code “addressing the levels of disclosure in the industry and how [the industry] should communicate with a wide range of stakeholders.”

However, the example of the AA suggests a high level of disclosure is no guarantee of avoiding conflicts with stakeholders, such as the GMB trade union, whose protests have largely been centred on job cuts.