Tuesday 20 August 2019

Cardinal Carlyle weighs up AA Ireland public listing

The AA Ireland was snapped up by a private equity fund last year

Noel O'Halloran of KBI Global Investors
Noel O'Halloran of KBI Global Investors

Gretchen Friemann

AA Ireland, the motor insurer and roadside assistant provider, snapped up by a private equity fund last year, is viewed by its new owners as a potential candidate for an initial public offering (IPO).

Cardinal Carlyle Ireland (CCI) bought the iconic business in 2016 for €156.6m.

Since then its operating profit has grown to over €20m and if the firm continues on that trajectory CCI will assess an IPO.

The listing of AA Ireland would mark the first private equity-sponsored IPO of a trading business since the crash and while any selldown in public markets is likely to be some time off, speculation about CCI's exit comes amid mounting investor appetite for offerings.

Jonathan Cosgrave, managing director at the Carlyle Group and co-head of Carlyle's Ireland fund, stressed AA Ireland remains the largest investment so far by CCI and the only company within its portfolio considered suitable for an IPO.

"In terms of an IPO, we believe the minimum level of earnings for a business to go public is in the region of €20m and if we look at the businesses that we have, the AA is the only company in that category," he said.

"I'm not saying it's the plan for the business, but AA is the only company in our portfolio that meets the bar."

According to Noel O'Halloran of KBI Global Investors, the increasing demand for new offerings underlines the economy's shift into a "sustainable" recovery phase.

He said his firm has supported most of the IPOs since the crash and said he would welcome "more diversity" on the Irish stock exchange.

The exchange endured the delisting of several prominent companies following the bailout, including banks, builders and insurers.

Mr O'Halloran argued that Ireland's economy is now moving into the phase where you see a "natural acceleration" of IPOs but stressed they need to be "credible" in terms of valuation and size.

He added the level of regulation has become a deterrent for businesses seeking to raise money from public equity markets.

Mr Cosgrave also emphasised the additional constraints of an IPO. "There is a cost to being listed, and there is a drag, in terms of management distraction and costs that result from the IPO process and being listed."

Yet the three deals brought to market this year have all attracted robust support.

Crucially the share prices of the new stock market entrants continue to trade above the issue price.

AIB's IPO ranks as the largest this year in Europe, with investors stumping up €3.4bn to leave taxpayers with a 71pc in the bank - a figure that is likely to dwindle further next year.

The Oaktree-backed listing of builder Glenveagh Properties also drew larger than anticipated support after it raised €550m from institutional fund managers, while the strong appetite for the green energy infrastructure fund, Greencoat Renewables, enabled AIB to reduce its cornerstone stake in the business by €10m, following a €270m equity raise over summer.

But as Mr O'Halloran points out, an IPO of AA Ireland would represent the first "clean exit" of a PE fund via the stock market.

CCI's acquisition of the motoring services provider and insurance intermediary took the fund far outside of its €5m to €50m target investment range but the acquisition was part-financed by Carlyle's €3.5bn European buyout fund.

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