CVC, Permira to acquire AA for £1.75bn

Centrica has agreed to sell its provider of roadside help and car insurance division to a consortium comprising CVC and Permira, who beat off competition from KKR.

A consortium comprising pan-European private equity firm CVC Capital Partners and London-based Permira has agreed to acquire the Automobile Association for £1.75 billion (€2.6 billion; $3.2 billion).

Parent company Centrica, the UK’s largest household supplier of gas and electricity, had put the AA up for sale in a restricted auction process, which attracted interest from a number of private equity consortia, but was narrowed down to bids from global buyout firm Kohlberg Kravis Roberts and the winning group.

Centrica acquired the UK’s largest motoring organisation in 1999 for £1.1 billion. Last year the AA generated revenue of £797 million and operating profit increased to £93 million. Centrica said that the price paid would result in a “net cash consideration of approximately £1.63 billion”, representing a net earnings multiple of 23x the AA’s 2003 earnings.

The acquisition of the AA fits with CVC’s ownership of Kwik-Fit, the car tyre-fitting, parts and insurance firm.

Earlier this week, KKR agreed to acquire German automotive operator Auto-Teile-Unger for €1.45 million from London-headquartered private equity firm Doughty Hanson.

Having divested the AA, Centrica plans to return £1.5 billion of the sale proceeds to shareholders by way of a special £1 billion dividend and the launch of a £500 million share buyback in the 12 months following the sale.