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Fetch the jump leads! AA shares dive 7.2% on debut

by James Phillipps on Jun 24, 2014 at 07:01

Fetch the jump leads! AA shares dive 7.2% on debut

AA’s share price sank by 7.2% on their first day of trading in another sign that the market is growing weary of IPOs.

The UK’s largest roadside assistance company with a 40% market share and 13 million members saw its share price sink 18p from its 250p offer price, giving it a market cap of £1.3 billion.

In a convoluted deal, management backed by a number of City fund managers backed a buyout earlier this month ahead of its accelerated listing. It was previously owned by Acromas, which in turn was owned by a trio of private equity groups- Charterhouse, CVC and Permira.

AA said it would use some of the proceeds of the IPO to pay down its mammoth £3 billion debt pile as well as investing in the business in a bid to increase its market share.

However ETX Capital believes the market is growing increasingly wary of private equity backed companies coming to market after a number of recent damp squibs, such as Saga and Pets at Home.

‘Traders are growing a little weary of IPOs in recent weeks given the lofty valuations which some new entrants to the stock market are sitting on, raising worries that forward earnings do not match,’ ETX said.

‘At the same time, there’s a bit of scepticism surrounding this IPO as well as other floats which involved private equity firms offloading their stakes to raise cash. 

‘Private equity firms which have been unable to provide returns to their clients have hastily offloaded stakes in companies as a result. A private equity firm wouldn't dispose of its holding in a company it deems successful and profitable so the market may be taking this as a warning. 

‘AA also has a huge pile of debt at around £3 billion which may make it less compelling as an investment case. For that reason, it’s not that too surprising why the shares are under pressure – management at AA will probably have to soothe the markets nerves before traders are convinced in the AA story.’ 

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How is regulation feeding the outsourcing trend?

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