LONDON (Reuters) — Private equity-owned motoring services firm The AA is uniting with Saga Holdings Ltd, which sells holidays and financial products to people over 50, to create a UK group worth $6.15 billion ($12.3 billion) with 11,100 employees.The deal announced yesterday sees two of the country's best-known consumer brands come together with each bringing a large and loyal customer base for the other to target.

The AA will sell car breakdown assistance and car-related services to Saga's 2.5 million customers, while Saga can offer financial services, cruiseliner trips and healthclub membership to the older part of AA's 15 million members.

The transaction, orchestrated by the businesses' main owners Permira, CVC Capital Partners and Charterhouse Capital, comes as the private equity industry faces widespread criticism by unions and politicians.

Permira's ownership of the AA was one of the factors that sparked an outcry against private equity firms from the GMB workers' union which also criticised the firm's managing partner, Damon Buffini.

The merger deal values the AA at $3.35 billion and Saga at $2.8 billion — 12.3 times and 17.7 times their 2006 financial year core earnings respectively — representing big returns on all three firms' original investments. CVC and Permira bought The AA for $1.7 billion in 2004, while Charterhouse, which backed Saga's management buy-out the same year, paid $1.35 billion.

CVC and Permira will have a 42.5 percent stake in the new entity while Charterhouse will own 37.5 percent. The balance will be owned by management and staff of both firms.

Saga chief executive Andrew Goodsell will lead the new company while Tim Parker, AA's chief, is set to leave when the deal is completed.

The two firms will operate separately but the new holding company's headquarters will be in the southern British coastal town of Folkestone where in the 1950s Saga's founding de Haan family's hotel offered pensioners off-peak holidays.

Saga said in April it was considering a stock market listing. The aim now is for the newly-merged group to eventually seek a stock market flotation, a company spokeswoman said.

The GMB said the deal was a prime example of collusion among private equity firms, which is being investigated by a parliamentary committee as part of its investigation of the leveraged buyout industry.

"This is just private equity giving two fingers to the House of Commons inquiry," GMB national officer Paul Maloney said.