Aviva, Norwich Union’s owner, announced last week that it had agreed a takeover of RAC in a deal worth an estimated £1.1 billion.
Norwich Union insures about one in seven of Britain’s motorists and said the acquisition, which still needs shareholder and regulatory approval, would accelerate growth.
But it could also accelerate major changes in the industry, particularly the leasing industry.
RAC is much more than a breakdown company, as it also owns brands including driver training firm BSM and half of Lex Vehicle Leasing, with the other share owned by banking giant HBOS.
Industry insiders have suggested that HBOS might act to purchase the remaining half share of LVL as a result of the RAC sale.
Already HBOS owns Bank of Scotland Vehicle Finance and if the purchase went ahead, it could create the country’s first 200,000 vehicle leasing company.
However, HBOS was not being drawn on speculation of a deal.
Goerge Grant, managing director of BOSVM, said: ‘My philosophy is never to comment on speculation. I understand why people speculate, but in 50% of cases it turns out to be unproductive.’
Jon Walden, managing director of Lex Vehicle Leasing, said the Aviva deal would not affect customer service.
He added: ‘Our business is almost a self-contained operation, with our own IT and sales force. We have a very strong brand name in the business market and I would be surprised if any company did not want to use the advantage of that name.
‘We are performing well and have had a good set of results, so we are looking forward to working with Norwich Union.’
RAC deal is good for customers, says Aviva
AVIVA said its rationale for buying RAC was because the businesses complemented each other.
Norwich Union has 15 million customers, while the RAC has 6.7 million in its roadside assistance arm alone, so the combination will create a powerful new force in insurance and motoring services.
Selling between the customer bases is a certainty, including the fleet market where both have a significant presence.
Recently Norwich Union has been trialling Pay As You Drive insurance with fleets, with RAC reaching 4.5 million drivers through corporate deals, while both have been offering risk management services to the fleet market.
Aviva said the move would bring it closer to customers and offer a broader range of products and services.
Furthermore, RAC is already one of NUI’s largest suppliers, having provided the motor claims notification customer helpline, roadside recovery and a roadside assistance service offered as an addition to NUI motor insurance policies for 10 years.
RAC has provided underwriting of NUI’s motor legal expenses cover and operated its motor legal expenses claims handling service for seven years. For the last two years it has provided services to NUI’s own branded roadside assistance product.
In 2006, total pre-tax cost savings across the combined businesses are expected to be at least £80 million per annum.
The cost savings are anticipated to arise from removing duplication, supply chain savings and some offshoring of back office and administration roles.
Richard Harvey, group chief executive of Aviva, said: “The combination of Norwich Union Insurance and RAC will be a powerful new force in the UK insurance and motoring services industry.’
Patrick Snowball, chief executive of NUI and group executive director, Aviva, added: ‘There is significant potential for growth from realising the full power of the exceptionally strong RAC brand, particularly in financial services.’
‘When it comes to their car, we will help our customers learn how to drive it, buy it, insure it and, if things go wrong, get them back on the road fast.’
Andy Harrison, Chief Executive of RAC, said: ‘This acquisition will help to accelerate our growth, particularly in financial services, which is one of our biggest strategic opportunities. The offer represents a significant premium to our recent share price reflecting the success of RAC and the strength of our brands – this is a testament to the commitment and contribution of all our colleagues in RAC.’