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October 12, 2004

COMMENT: AA: the road to success

After its recent acquisition by private equity houses CVC and Permira, the AA has announced a major restructuring including an exit from the car servicing business and cutbacks of up to 1,300 jobs. The moves will create a more efficient, streamlined and profitable company.

By bcusack

After its recent acquisition by private equity houses CVC and Permira, the AA has announced a major restructuring including an exit from the car servicing business and cutbacks of up to 1,300 jobs. The moves will create a more efficient, streamlined and profitable company.

Having acquired the AA for a hefty GBP1.75 billion, private equity houses CVC and Permira have moved quickly to restructure the business and raise profitability. The deal only closed on September 30, but the new management, led by chief executive Tim Parker, has rapidly taken a scalpel to the group’s loss making operations.

A total of 1,300 jobs will be cut at the company. First, it emerged that the company has made significant reductions to headcount amongst its marketing staff, including some losses at a senior level. Now, less than two weeks since acquiring the company, a more significant restructuring at the company’s car servicing operations is taking place.

The AA is to sell 50 AA Service Centres to Nationwide Autocentres – the UK’s leading garage servicing chain. The remaining 72 sites will be closed. The company will also close AA Tyre Fit – a mobile tire fitting service – and its Vehicle Inspections business.

Tim Parker is no stranger to the car servicing business and knows well just how competitive the sector is. He joined the AA from CVC-owned Kwik-Fit, where he was also chief executive. In his previous role, one of his key strategic moves was an exit from the wider car servicing business to focus on the fast fit sector, particularly replacement tires and exhausts, where Kwik-Fit’s key strength lies. And he did so by selling the company’s garage servicing business – then known as Stop ‘n’ Steer – to none other than Nationwide Autocentres.

For the AA, the moves bring to an end the company’s diversification from its core roadside assistance and financial services operations. The moves will certainly raise the profitability of the business – the AA Service Centres alone made an operating loss of GBP20 million last year, with a further GBP7 million loss at AA Tyre Fit. The ultimate result of its new owners’ restructuring looks set to be a more streamlined and ultimately profitable business.

SOURCE: DATAMONITOR COMMENTWIRE (c) 2004 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.

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