Aviva, one of the leading insurers in the UK market, has announced that it is to buy RAC, the UK motoring services business. Although the cost of the acquisition may seem high at £1 billion, Aviva is inheriting a number of very powerful motor-related brands and businesses, providing significant cross-selling opportunities for the company.
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In an attempt to boost its general insurance business, Aviva has agreed to purchase RAC for £1.1 billion, which values RAC at around 20 times its 2004 earnings. The acquisition comes within a year of the other leading UK motoring services organisation, the AA, being bought by a private equity consortium for £1.75 billion. Naturally, the City reacted very positively to the news, with RAC’s share price rising 19% when the news was first revealed. Aviva’s share price rose just under 2%.
The deal marks the second acquisition of RAC in the last six years. In 1999, Lex Service purchased RAC for £437 million and subsequently re-branded its whole organisation as RAC. No such move can be expected from Aviva though: it will be looking to capitalise on RAC’s existing limited presence in the insurance market as well as the opportunities to diversify its own business that come with the deal.
In addition to the insurance business, Aviva will get a host of other businesses which are parked under the RAC brand. RAC operates BSM, one of the leading driving schools in the UK, as well as owning half of Lex Vehicle Leasing, one of the UK’s leading vehicle lessors with a fleet in excess of 100,000 vehicles. Aside from these two, the rescue and recovery service and other financial services operations of RAC will also be a key asset for Aviva, as RAC has 2.2 million members of its UK roadside assistance operation.
With such a diverse range of operations, there must be some doubt whether Aviva will keep hold of all the RAC businesses. Yet given the number of different motoring brands and the significant member base Aviva has inherited, one of the key attractions for the company is the significant cross-sell opportunity that is available. With RAC’s insurance customer base standing at just 275,000 motor and home policy holders, the potential market to aim at is fairly significant.
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By GlobalDataSOURCE: DATAMONITOR COMMENTWIRE (c) 2005 Datamonitor. All rights reserved. Republication or redistribution, including by framing or similar means, is expressly prohibited without prior written consent. Datamonitor shall not be liable for errors or delays in the content, or for any actions taken in reliance thereon.
