AA, the Automobile Association, one of Britain’s most famous roadside assistance providers, founded in 1905. Now, the company is looking for a buyer or public offering to cash in on its recently turned around financial fortunes. In exchange, the company can now claim to have 17 million “passionate” customers. Lately, it’s been on a strong revenue growth and profitability streak, turning it into an appealing investment opportunity for potential investors.
In the first half of this year the AA racked up an eye-popping £623 millions in revenues. This is a 5% increase from the totals last year at this time. This revenue growth, along with a remarkable 54% rise in profit before tax to £50 million, indicates the company’s robust recovery from financial challenges. The AA has padded its bottom line due to a steep decline in finance costs. This drop has been central to fueling the boom in profit.
TowerBrook and Warburg Pincus went on to take the AA private in a £219 million takeover in 2020. In the years since, the AA has been through a massive reorganization. The company faced significant fiscal difficulties as a public company. Following the announcement, shares plummeted 79 percent to a low of 15p. At the time, the AA was burdened by £2.6bn in debt, or 6.7x its annual earnings.
The AA is now owned by CVC Capital Partners, GIC – Singapore’s investment fund, and Silver Lake Partners. Management has done a good job of cutting its debt down to £1.9 billion today, which is only 4.1 times its earnings today. This drastic increase in its financial position is a key factor in its valuation. Currently, that valuation has reached a staggering £5 billion.
AA’s performance metrics underscore a persistent upward trend. The company’s underlying earnings (EBITDA) jumped 12% to £152 million. At the same time, revenues driven by its core Transit and Highways operations jumped 8%, reaching £411 million during that stretch. These figures are a testament to the AA’s impressive operational efficiency. They emphasize its unique transformation and agility to flourish in a competitive and emerging space.
Industry analysts have speculated that these financial indicators will put the AA in a good position for a public offering or sale. That’s something investors will find attractive given the company’s improved profitability. They will be glad for its comparatively modest amounts of debt when they consider new markets for future opportunities.