The plot thickens as to the AA's fate

The potential break-up and sale of AA Insurance and Saga will come as no surprise to some.

Two years ago, Acromas, the parent company of the AA, said that it was looking to float the AA following its annual results in late July.

Given the differences between the two brands, it is only a matter of time before the AA is put up for sale.

The only sticking point so far has been the current state of the equity markets, but with advisers to the company no doubt keeping a close watch on the imminent Direct Line Group flotation, a sale may not be that far away.

While the growth of the AA’s roadside assistance book has been slower than many of its competitors, Saga’s travel and care portfolios have proved to be the real growth engines of the business, making Saga ripe for a standalone initial public offering.

Added to the AA’s woes has been Carlyle’s £1bn swoop for RAC from Aviva in June last year, which has in turn increased the pressure on the AA as the private equity house has channelled its resources into RAC.

The next question is how much would each part of the business fetch? Since being taken over by Acromas in June 2007 with the backing of £4.8bn of debt from private equity firms Charterhouse, CVC and Permira, the combined valuation of the two companies has risen from £6.15bn to £9bn.

The AA alone is said to be worth £5bn and, according to reports, Ernst & Young (E&Y) has been called in to carry out pre-sales due diligence for the AA as a separate entity. E&Y is also due to assess the value of Saga, which is said to be between £3bn and £4bn.

Another possibility to a straight trade sale could be Acromas’s private-equity owners going to the bond market to raise funds through a refinancing deal. The final option may be bringing in a new cornerstone investor, such as a sovereign wealth fund or another private equity house in order to return some capital to its shareholders.

Any sale is expected to begin early next year once the investment banks have been selected.