US private equity firm the Carlyle Group will acquire the RAC from insurance group Aviva in a £1 billion deal, according to a statement. It is the eighth buyout made using capital from Carlyle Europe Partners III, a €5.4 billion buyout fund raised in 2006.
The deal for the roadside assistance group comes just days after Carlyle entered exclusive negotiations with The Gores Group to acquire broadband technology group Sagemcom. That deal will also be funded using capital from CEP III, with press reports indicating Carlyle could pay about €400 million for the business.
Carlyle had faced competition from several other buyout firms, understood to have included Clayton Dubilier & Rice, BC Partners and Bain Capital, for the asset.
Carlyle put together what one banking source said was a “conservative” financing package, with debt provided by JP Morgan, BNP Paribas, Credit Suisse, Morgan Stanley, and UBS, according to the source. Lazard and Clifford Chance advised Carlyle on the deal, while JPMorgan Cazenove and Slaughter & May advised Aviva.
The price paid represent a 17x multiple to the RAC’s 2010 earnings, but a source close to the deal said the high multiple was justified as the business was “highly cash-generative with excellent growth potential”. The source said there would be a significant uplift in profitability as a result of being managed as a stand-alone entity rather than as part of Aviva.
Aviva acquired the RAC five years ago for about £1 billion, but has since sold parts of the company, generating about £500 million in profits as a result according to press reports.
Andrew Burgess, a managing director Carlyle, said: “The RAC is a renowned brand synonymous with trust and reliability. We see great opportunity to enhance the roadside business with an emphasis on ensuring customer satisfaction at both the consumer and corporate levels. There is also strong longer term potential to grow the business by investing in new and innovative financial services offerings such as motor and household insurance.”
In a statement, Carlyle said: “The RAC management team has a clearly articulated strategy, which is fully endorsed by Carlyle, to optimise the roadside recovery business, grow the insurance and financial services business, and diversify further into motor services and other personal finance-related products in the longer term.”