Saga’s private-equity-driven merger with the AA, announced last week, will require some deft marketing to prove that it is more than an exercise in financial manipulation.
The two organisations will be put into a single holding company, controlled jointly by their private equity owners. Saga’s management will lead strategy for the two.
One source says the deal is simply a case of “flipping”, where private-equity owners exchange assets to re-finance businesses after about three years, when the original loans used to fund the purchase run their course.
But Andrew Goodsell, chief executive of the new company – who has run Saga since 2004 – insists there is strong commercial logic for the deal uniting Saga’s 2.5 million customers with the AA’s 15 million.
“Both organisations can grow and benefit from sharing expertise and systems. We also see great opportunities to offer Saga’s products to the AA’s 50-plus members and the AA’s products to Saga customers. This is a great deal for both businesses,” he says.
One observer says Saga could benefit by cherry-picking the most profitable customers from the AA’s insurance brokerage service and funnelling them into its own underwritten business. “This enables Saga to choose the customers it wants from AA’s brokerage business,” he says. Others warn that this could damage the AA’s reputation for impartial broking.
But some doubt the potential for cross-selling between Saga’s insurance, cruises, and other services aimed at the over-50s, and the AA’s motor breakdown, insurance and loans business.
Martin Troughton, marketing director of Anglian Home Improvements, who founded direct marketing company Harrison Troughton Wunderman and is familiar with AA and Saga, says: “It doesn’t feel like that great a linkage of the brands. Saga is a niche offer and the AA is a mass-market brand. The AA customer base will already have a lot of Saga customers on it and has a high degree of elderly people, so they are already selling to that audience.”
He says the AA needs to recruit younger customers, as it already has an ageing profile. He points to the RAC, which is attempting to appeal to younger drivers through its marketing.
A spokeswoman for the holding company says the Saga and AA head offices will be maintained, and the brands will operate separately though their databases, which could be used for crossselling. One observer says that data protection legislation could make this difficult if they are run as separate businesses.
Meanwhile, Richard Huntington, former planning director of HHCL & Partners, which created the AA’s now defunct “4th Emergency Service” campaign, believes it could be a positive move for both brands. “These are two iconic brands coming together. Saga is an über-lifestyle brand of the future and, at last, the AA might be owned by someone who cares about it – Centrica didn’t and the previous owners didn’t.”
He says the opportunity is not so much in cross-selling as in applying Saga’s customer relationship management skills to the AA’s database. But he concedes: “There is a mismatch in numbers – the 2.5 million on the Saga database is a deep relationship, but the AA hasn’t got beyond sending out annual renewal letters.” He says the AA needs to demonstrate why it commands a premium over rivals.
Job losses are expected from the deal, though the spokeswoman says there are unlikely to be redundancies among senior marketing staff, “as far as I know”.
Though AA marketing director Kerry Cooper will stay in place, some expect Saga chief operating officer Steve Ashton and financial services brand marketing director Aynsley Jardin to spearhead marketing for the combined operation. The £40m combined media spend, with Carat handling Saga’s account and PHD handling the AA’s, is expected to be reviewed. There is no news on other agency reviews.
Goodsell is under pressure to demonstrate that the Saga:AA link-up is an astute business move, rather than the greed-fuelled exercise in financial engineering that trade union critics claim.
The outcome of this deal could have significant ramifications on legislation and the tax regime for the wider private equity sector. It will be down to marketers to make it work.