The Saga, saga

The big guns of the City are being brought in to handle the sale of Saga, the travel and finance company that caters to the 50+.

Brunswick has been brought in to handle the financial PR and UBS, the investment bank, will advise on the sale. Figures of £1 – 1.5 Billion are being talked of as the group’s value. Not bad for a company making a £35m of post-tax profits earned on sales of £341m. It is believed that the company’s database represents about 40% of the 19.5 million people in the UK aged 50-plus, who make up two-fifths of Britain's adult population.

There have been some interesting articles written about this sale, why it is happening and the value of an ‘oldies’ brand.

The Economist had an article titled ‘oldies dream: yes, but...’ It came to conclusion that the expected sale price was extremely high. It reached this conclusion by looking for comparable companies in Saga’s two main areas of business – insurance and cruising.
Marsh & McLennan, a big American insurance broker, sells in London on a price/earnings ratio of 16; Carnival, an American-run cruise operator, sells on a forward-looking ratio of 28. The figure that has been quoted for Saga is a value of 30 or 40 times its post-tax profits.

The article in the Observer was titled ‘Saga could end in tears’. It argued that the owner of Saga, who stands to collect more than £1bn if he pulls off a sale, has a good sense of timing and sees the warning signals as ‘the grey brigade is growing less prosperous by the day because of the winding-up of final salary pension schemes, a sluggish stock market and an almost certain sharp decline in house values means that more people face impoverishment as they move from middle age to retirement’. Ten or so years from now, Saga may be speaking to an increasingly cost-conscious and financially stretched audience.

James Langton-Way (soon to become a contributor to this blog) wrote about Saga in Brand Republic. He pointed out that 80% of the Saga’s £48 million pre-tax profits came from that Saga Services. This is the division that sells home, motor, travel, leisure and pet insurance together with a wide range of other financial services (such as Visa cards, financial advice, savings and investment products). This is contrary to most peoples’ perception that the company is all about holidays, travel and its magazine.

My personal view is that Saga has been too successful and has established a very clear position in the market as being for ‘old people’. This is not a label that the new ‘old people’ want attached to them metaphorically or physically (to their luggage). A very good time to sell the company. Buyers beware.

The comical thing that occurred in the US during all of the press coverage of the sale was the jump in share price of the Michigan-based broadcaster Saga Communications. Its shares increased by 5% before it asked the American Stock Exchange to halt trading in its stock.
Apparently the Wall Street Journal had written a report referencing the sale and some dyslexic equity analyst made a costly mistake.

I am sorry that none of these articles can be downloaded as they are all on subscription based web sites.