Saga Confirms IPO to Target Retail Investors

UK insurance-to-travel services company Saga, which targets consumers aged over 50, has confirmed plans to raise £550m in a London Stock Exchange (LSE) listing with up to 50% of the shares allocated to retail investors.

Reports suggest that bankers could earmark 30% to 50% of the equity to individuals subject to demand. Around 700,000 customers of the company, which deliberately focuses on the ‘grey pound’, have registered an interest in taking part in the flotation.

“I’m determined that we should give customers a good share of this,” said Andrew Goodsell, Saga’s executive chairman. The planned net proceeds of £550m from the float will reduce the company’s net debt to £700m and enable Saga to expand, said Goodsell. “We’ve operated with very substantial leverage for a long time. That has inevitably been a constraining factor in things we’ve wanted to do.”

The flotation has caused controversy as Saga aims to boost its valuation by pushing for a consumer services sector description. Although some 70% of earnings come through its motor and home insurance offerings, the company maintains that it should not be included in the FTSE’s insurance sector of companies, but instead in the specialised consumer services sub-sector. It would join ranks with funeral service provider, Dignity, as the only other company in the sub-sector.

Fund managers contend that it is a cynical move to use the higher valuations of consumer companies to achieve a higher rating for the company than it should deserve. The fund managers have, in turn, been accused by bankers of trying to pressure the company to lower the price of its initial public offering (IPO) to obtain shares ‘on the cheap’.

In 2007 Saga was merged with vehicle breakdown recovery service the Automobile Association (AA) by its private equity (PE) owners. Plans to demerge the two led to
protests by AA employees
earlier this year.

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