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AA in talks with private equity groups as deal deadline looms

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Two private equity firms are in last-ditch talks with the AA’s management over the terms of a possible bid for the heavily indebted roadside recovery group, people close to the matter said, with any offer unlikely to give shareholders a significant premium to the company’s most recent closing share price of 33p.

Warburg Pincus and TowerBrook Capital Partners are in the final stages of negotiating a potential joint offer for the group, ahead of a Tuesday deadline set by the UK’s Takeover Panel.

However, the people cautioned, there is no certainty that a deal will be reached, with one estimating a 50-50 chance of an agreement being struck by the deadline. “It could still go either way,” another person said. 

The AA has been speaking to potential bidders since the summer, as it seeks to bring in cash as repayment deadlines on a large portion of its £2.6bn debt edge into view. 

Any offer would probably be pitched fairly close to the current 33p trading price, one of the people involved said. Such a move stands to disappoint some AA shareholders, who have previously demanded a higher bid. 

Drew Dickson, the founder of Albert Bridge, the AA’s largest shareholder, told the Financial Times in August that an offer of £200m for the company’s equity would be a “somewhat opportunistic” move by private equity firms. An offer at the current share price would value the company’s equity only slightly higher, at £209m.

However, the bidders would argue that their approach amounts to a rescue deal, a person close to the matter said. About £913m of its debt falls due for repayment in the next two years. It made £107m in pre-tax profits in the year to January 31.

The AA, known for its yellow recovery vans, is weighed down by debt, a legacy of previous private equity ownership which means its interest payments alone in the year to January totalled £128m, more than half of its market value.

One main sticking point in the talks has been the announcement by the UK’s Financial Conduct Authority in September of a new ban on charging existing insurance customers more than new clients for home and motor cover. That would hit the AA’s insurance business, which it operates alongside its roadside recovery operations. 

The AA’s shares were trading at 25p on the day before the company announced in August that it was in talks with buyout groups.

Its announcement said would-be bidders had indicated any offer would involve a “significant” amount of new equity being injected into the business to lower its debt load. 

The AA, Warburg Pincus and TowerBrook declined to comment. 



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Krispy Kreme: sugary valuation piles on the dollars

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Krispy Kreme declares in its listing prospectus that its purpose is to “touch and enhance lives” through doughnuts. Investors who consider swallowing this richly valued offering risk financial heartburn instead. For a fried dough merchant Krispy Kreme does not make a lot of dough.

The Charlotte-based company, which operates more than 1,700 shops in the US and overseas, is planning to sell almost 27m shares for $21 to $24 apiece. At the top end of the range, this values Krispy Kreme’s equity at almost $3.9bn. Throw in total debt of $1.2bn and the enterprise value is 35 times last year’s adjusted ebitda. 

This is a valuation as sickly sweet as a chocolate-iced custard filled doughnut. Inspire Brands paid 24 times for rival doughnut chain Dunkin’ Brands in October. Unlike lossmaking Krispy Kreme, Dunkin’ is consistently profitable.

Owner JAB Holding will try to drum up investor enthusiasm by fixing their gaze on Krispy Kreme’s sales growth. Revenue grew 17 per cent last year to top $1bn. But so did the tide of red ink. The company made a net loss of $64m in 2020, up from $37m in 2019 and $14m in 2018. Costs related to buying back franchises are partly to blame. But if Krispy Kreme has not been able to make a profit from selling sugary pastries in the past three years there is no reason to expect a sudden turnround.

It makes sense that JAB would want to cash in some of its stake now. The US initial public offering market is red-hot. Companies have already raised $70.6bn since the beginning of the year, a record start, according to Refinitiv. After taking Krispy Kreme private in 2016 for $1.35bn, JAB will continue to own almost 78 per cent of the company’s shares after the IPO. 

This is less tempting for investors. With salad chain Sweetgreen and coffee purveyor Dutch Bros also readying to go public, there are plenty of other opportunities to invest in America’s growing appetite.

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Nordgold pulls planned London listing

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Russian gold miner Nordgold has pulled its plan to list in London just two weeks after its announcement, citing volatility in the price of the precious metal.

Nordgold said on Tuesday it would “not be sensible to pursue an IPO at this particular juncture”, following a 6 per cent drop in the gold price since the company announced its intentions on June 3.

The miner, which is owned by the family of billionaire Alexei Mordashov, had planned to sell a 25 per cent stake to investors, including via a secondary listing in Moscow. The company held meetings with 220 investors, according to one person familiar with the deal.

Mordashov had targeted inclusion in the FTSE 100 index and his family were set to make about £1bn from the listing. There was a “strong appetite for gold stocks in the market, also gold stocks from Russia”, he told the Financial Times on announcing the London listing plans.

But the announcement last week by the Federal Reserve that it may raise interest rates in 2023 dented investor enthusiasm for gold, according to the company.

“Recent central bank comments indicating an acceleration in expected interest rate rises have created significant uncertainty and volatility in the resources sector, in particular impacting gold and gold equities,” Nikolai Zelenski, Nordgold chief executive, said in a statement.

Nordgold has nine mines — four in Russia, three in Burkina Faso and one each in Guinea and Kazakhstan. It produces more than 1m ounces of gold a year and reported earnings before interest, tax, depreciation and amortisation in excess of $1bn last year.

Nordgold was previously listed in London but left the exchange in 2017. “We delisted the company always with an intention to float it again under favourable conditions,” Mordashov said in an interview with the FT this month.

Nordgold had hoped to attract investors by paying higher dividends than its peers in North America. It is developing two new gold mines in the Far East of Russia, which will help it boost production by an expected 20 per cent over the next five years.

In contrast, production at the world’s largest gold miner, Newmont, is set to remain roughly flat until 2025.

Nordgold was only planning to sell existing shares and not raise any capital in the listing, which means it can wait for a better listing window, according to people familiar with the deal.

Many investors believe the Fed is in control of inflation and that they do not need gold as a hedge in their portfolio, according to people with knowledge of Nordgold’s listing plans.

Since the Fed’s comments, shares in gold miners as measured by the NYSE Arca Gold Bugs index have fallen 9 per cent.

Shares in Canadian gold miner Endeavour Mining have fallen 4 per cent since the company listed in London last week.



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Soho House owner files for New York flotation

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The owner of Soho House, the private members’ club, has filed for an initial public offering, as the company seeks to tap into investors’ growing interest in leisure stocks.

Membership Collective Group, which owns 28 Soho Houses worldwide among other properties and a retail brand, said on Monday that it plans to list its shares on the New York Stock Exchange under the ticker “MCG”.

The company said in a filing with the Securities and Exchange Commission that it intends to raise $100m, a figure that is often used as a place holder for calculating registration fees. It has yet to determine the number of shares it will offer or a price range for those shares.

A rebound in travel and dining demand heading into summer, bolstered by vaccinations against Covid-19, has stoked speculation that MCG will target a valuation greater than the $2bn marker set in a $100m funding round last year.

The hospitality group, backed by US billionaire Ron Burkle, said its membership numbers held steady through the pandemic. It retained 92 per cent of Soho House members in the 2020 financial year and received more than 30,000 applications for its membership brands, according to the S-1 filing.

Revenues in the first quarter of this year totalled $72m, down from $142m in the same period a year earlier. It also reported a net loss of $93m, compared with a $45m loss in 2020.



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