CVC buys out Carlyle to invest in RAC alongside GIC

The exit is believed to have produced an IRR of around 60% for Carlyle.

CVC has joined Singaporean sovereign wealth fund GIC as co-investment partner in UK road-side assistance business RAC.

The move sees The Carlyle Group finally exit the firm after initially buying RAC for about £1 billion ($1.5 billion; €1.4 billion) split equally between equity and debt, it is understood, in a corporate carve-out from Aviva in 2011. Carlyle had previously sold a stake in the business to GIC last year.

The exit is believed to have produced an IRR of around 60 percent and a money multiple of 3.8x for Carlyle, according to market sources, and brings the number of full or partial exits from the Carlyle Europe Partners III fund to 12.

The investment is the first from CVC’s $4.5 billion Strategic Opportunities Fund, which had previously looked at Center Parcs, before it was eventually sold to Canadian firm Brookfield in June this year for $2.4 billion.   

The fund’s strategy was created due to market demand from larger investors for high quality, longer term investments with lower risk. Its typical hold period is expected to be 8-12 years, and it is understood to be targeting mid-teen returns.

RAC is the second-largest roadside assistance provider in the UK with around 8.6 million members.

According to a statement, CVC said it would, along with co-shareholder GIC, “continue the extensive investment that has been made in the RAC’s technology, data and telematics platform to augment the range and convenience of services to members and corporate clients.” 

Under Carlyle’s ownership, RAC’s revenues grew from £417 million in 2010 to £498 million in 2014.

Over the same period, it substantially reduced energy consumption per breakdown for its vehicle fleet and implemented energy efficiency measures which jointly contributed to EBITDA and reducing carbon emissions.

Andrew Burgess, managing director at Carlyle Europe Partners, told Private Equity International that Carlyle’s ownership of RAC had seen four distinct stages; carving out from Aviva and reinvesting; focusing on turnaround and growing its insurance broking arm; addressing its business to consumer and business to business operations; and investing in its telematics car fleet technology.

He said: “We bought a business that was ex-growth and set about re-investing in technology and management to drive growth. It went through a period of transition but it now has a stable and cash-generative core business and is set to grow for a very long time.”

Other exits from Carlyle Europe Partners III in 2015 include Telecable, Altice, Axalta and MPS.

Marc Boughton, managing partner and co-head of the Strategic Opportunities Platform at CVC Capital Partners, commented: “The RAC is a very high quality, resilient business in a stable industry, with great customer service and a loyal membership base. We look forward to working with GIC, a highly respected long-term investor and longstanding partner of CVC, to support the continued development of this great brand.

“We and GIC recognise that this will take time and capital, and this is why the RAC is an ideal initial investment for this platform.”

Henry Ormond, senior vice president at GIC, said: “We welcome CVC as our new partner in the RAC.  CVC brings a wealth of relevant experience, and as like-minded long-term investors we look forward to working with them in supporting the RAC on its continued development.

“We are also grateful to Carlyle for their significant contributions to the business since they first invested in 2011,” he added.

The transaction is expected to close in early 2016. Freshfields Bruckhaus Deringer advised GIC, while Linklaters and Clifford Chance advised Carlyle and CVC respectively.