The £6 billion merger of Saga and the AA is a gift for cartoonists: a company whose ideal customer is Victor Meldrew with a broken fan-belt on the hard shoulder of the A22. To complete a brand conglomerate for grandads — and since all three are owned by private equity funds — why not bring in Boots the Chemist as well? But most of all, the deal is another gift for the GMB union, whose leaders Paul Kenny and Paul Maloney have led such a creative campaign to blacken the name of private equity that they ought to be preparing their acceptance speeches for next year’s Baftas. They have already ensured that the AA — which was acquired by Permira and CVC Capital in 2004 for £1.75 billion, and subsequently shed 3,000 jobs — has had ‘more media coverage this year than the Iraq war’ (according to a rival union leader) even though the GMB is said to have only 100 members among AA patrolmen.
The scare story now is that the merger will lead to further job cuts (that’s what mergers do, I’m afraid) from the integration of the two companies’ administrative functions, and possibly of their insurance arms. But the real headline-maker, just when private equity could have done with a quiet week, is the news that Permira, CVC and Charterhouse (which bought Saga for £1.35 billion in 2005) will share at least £2 billion in dividends out of the deal. That dents the private equity men’s defence that their profits are generally made only after five to seven years’ hard application of management science to turn their purchases into better businesses. The AA has been given a swift cost-cutting shake-up but Saga is still very much the business it always was — and it’s hard to see the £2 billion divi as anything other than a startlingly fast buck.
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