Why the silence?

The AA, backed by CVC and Permira, has become the latest target in an increasingly fraught playing ground between public and private where buyout firms are targeting ever-bigger prey.

Managing partner of Permira Damon Buffini has come under particular attack by trade union GMB, which is accusing the buyout consortium of asset-stripping the company to the detriment of the business.

The GMB claims that since the AA was acquired from utilities group Centrica for £1.75bn in 2004 more than 3,500 staff have been sacked.

Talking to IFR Buyouts Europe, Paul Maloney, the GMB national organiser and head of the ‘AA asset-stripping’ campaign argues: “We understand that every company has to make a profit and we assist in whatever way we can to ensure that this profit is re-invested into the business, but this situation is different.

“In this instance, the AA is the fourth largest emergency service and is a well known and trusted public brand. But now its assets have been stripped and the company has been plunged into £1.9bn debt, the equivalent of almost £248,000 of debt per employee. The £200m profits made last year was used to service debt and £500m borrowed to pay CVC and Permira.”

He claims that staff shortages have reduced public services while prices have increased by 30%. “They have stripped the heart out of the company and with no assets to speak of it is like a castle built on sand,” says Maloney.

Chief executive of the AA, Tim Parker, has been reported defending the AA’s strategy. He argues that profits have increased from £93m in 2003 to £200m in 2005. He says the job cuts, however painful, were the result of an inefficiently run business under Centrica and that the borrowings are way below the market value of the business.

He also claims that the business has reinvested a considerable amount in marketing, which has attracted an additional 120,000 members a year. And the term “asset-stripping”, he argues, is confusing as the AA occupies few freehold properties and leases all its cars.

Neither the reaction of the union nor the defence of the AA by management is surprising. What is surprising, however, is the silence of the private equity houses involved, neither of which have chosen to comment or enter into dialogue.

Why, when the mantra of the industry is transparency, greater regulation and the awareness that private equity has to take more public responsibility for its businesses, have they remained so silent?

At a recent EVCA conference, Arthur Levitt, the former chairman of the SEC said: “While private equity will remain technically private, its actions will become the publics concern. Various stakeholders will lay claim to examining private equity actions: why are you closing that factory? Or slashing those jobs?”

He predicted this would lead to a tighter regulatory environment for private equity which could be pre-empted by self governance.

With the AA the next best thing to a public institution and with Buffini himself having publicly advocated the above, why did Permira not pre-empt this situation?

Sandrine Bradley