RAC sold for £1bn

RAC - the UK's second largest breakdown recovery group - was sold by insurer Aviva in a £1 billion deal with private equity group Carlyle today.

Aviva bought the Birmingham-based business, which employs 4,000 staff, for £1.1 billion in 2005 but has offloaded divisions such as the BSM motoring school and Auto Windscreens since then.

RAC's management, led by managing director Angela Seymour-Jackson, will stay with the business following the sale to Carlyle.

The group has about seven million customers and made profits last year of £82 million. Aviva will continue to supply motor insurance and sell breakdown cover to the RAC.

Founded more than a century ago in 1897, and now in vans painted a distinctive orange and silver, the RAC's 1,800 patrols attended to 2.5 million rescue breakdowns last year.

Carlyle is said to have won the battle for the roadside recovery group after topping rival offers from two other private equity groups.

Aviva, which is the world's sixth largest insurance group and the largest in the UK, said the sale is consistent with its strategy to focus on insurance and savings products, though it added as the RAC develops its business it will seek to find new areas where it can work with the breakdown group.

The insurer added it expects to book a profit of £600 million from the sale, which will bolster its balance sheet by £1 billion.

Under the terms of the sale, Aviva will inject £67 million into the RAC pension fund, which had a deficit of £160 million at the end of last year.

Carlyle, which already owns car rental giant Hertz and child car seat group Britax, said the RAC looked set for "long-term profitable growth" in an expanding area of the motor services market.

Ms Seymour-Jackson said Carlyle's financial strength would enable RAC to diversify into new business areas.

She added: "Carlyle has recognised that RAC is a high-quality business with significant growth potential.

"We have enjoyed an excellent partnership with Aviva, and are looking forward to our next phase of growth under new ownership."

Today's £1 billion sale proceeds are in addition to £500 million Aviva has raised through disposals from the RAC since it took it over in 2005.

BSM, the driving school group, has since been acquired by the AA after it collapsed into administration, while Auto Windscreens was also rescued from administration this year.