RAC sold to Carlyle Group in £1bn deal

WEST Midland based motoring organisation RAC has been sold by Aviva to The Carlyle Group in a deal worth £1bn.

The price represents 17 times 2010 net earnings and Aviva said the sale was in line with its strategy to focus the business in its priority markets of insurance and savings.

RAC, the second largest UK roadside assistance provider, employs more than 4,000 people and is headquartered at Bescot, near Walsall. Its iconic offices overlooking the M6 are a familiar landmark to thousands of motorists.

Completion of the deal, which is subject to regulatory and competition approvals, is expected at the end of the third quarter of 2011.

Carlyle, a global alternative asset manager, with significant experience of investing in UK companies, said it was fully supportive of the RAC management team, led by managing director Angela Seymour-Jackson, and its strategy to profitably grow the business.

Andrew Moss, group chief executive of Aviva, said: “The sale of RAC is another important step for Aviva and realises significant value for our shareholders. Together with the recent partial disposal of Delta Lloyd, it demonstrates clear delivery of our strategy and provides the flexibility to deepen our presence in the priority markets where we have strength and scale.”

RAC was originally acquired by Aviva for £1.1bn in 2005. It subsequently streamlined the business, disposing of non-core businesses raising approximately £0.5bn.

In addition to its roadside assistance service, RAC provides other motoring related services and has more than seven million customers.

In the year ended December 31, 2010, (unaudited) RAC results showed the firm with pre=tax profits of £82m and gross assets of £0.7bn. At the completion of the deal, RAC’s net assets are expected to be £0.4bn.

Aviva said the proceeds of the sale, which will be held as cash on the balance sheet, would enhance liquidity and further strengthen its balance sheet, enabling it to continue to invest in its priority markets.  In addition to the strategic benefits, Aviva said it remained confident of meeting the group’s near-term financial targets.

Based on 2010 results, the transaction is said to increase net assets by £0.6bn and tangible net assets by £1.0bn, or approximately 37p per share.

Aviva will retain the RAC (2003) pension scheme, which at December 31, 2010 had an IAS19 deficit of approximately £160m. On completion Aviva will make a one off contribution of £67m into the scheme.

Aviva will continue its commercial relationship with RAC both as a key underwriter of motor insurance on RAC’s panel and as a partner, selling RAC breakdown cover to Aviva’s customers.

It added that as RAC developed its business and extended its product offering both parties would seek to find new areas where they could work closely together.

J.P. Morgan Cazenove acted as sole financial adviser to Aviva.