Aviva has sold its RAC business for £1bn to Carlyle Group, the private equity firm, as the insurance giant focuses on its main savings and insurance operations.
The deal reverses Aviva's decision to buy the RAC just five years ago. At the time, investors questioned what the RAC added to Aviva and the insurer's management has since embarked on a push to sell off non-core divisions.
Analysts said the sell-off made strategic sense for Aviva and that the price looked like a creditable deal for the insurer. The headline £1bn price values RAC at 17 times 2010 net earnings and will give Aviva an accounting profit of £600m. Aviva will keep RAC's pension scheme, which had a £160m deficit at the end of 2010, and will make a f £67m contribution when the deal closes.
Andrew Moss, Aviva's chief executive, is selling off surplus businesses to concentrate on 12 markets, while keeping Aviva's "composite model" of housing, life and general insurance under one roof. The insurer said yesterday it would hold the profits from the sale on its balance sheet for investment in its main markets.
Mr Moss 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 [Dutch business] Delta Lloyd, it demonstrates clear delivery of our strategy."
Aviva will continue to work with the RAC by underwriting RAC motor insurance and selling breakdown cover to its own customers. Carlyle won a fierce battle with rival buyout firms, including BC Partners and Bain Capital, for the venerable roadside rescue business, which was founded in 1897.
The acquisition shows how surviving private equity firms are emerging from the debt crisis to pick off cash-generative businesses from public companies. Buyout houses were vilified during the debt boom for buying up businesses cheaply and slashing costs and jobs. Carlyle said it would expand the RAC by selling motor and household insurance.
Brendan Barber, general secretary of the TUC, branded the deal "irresponsible capitalism" and said it showed the City going back to its old ways. But Unite, the union representing RAC staff, said it was happy with the guarantees it had been given.
Tony Murphy, a Unite officer, said: "Unite has had extensive assurances that this sale will ensure that the workforce is protected."