Aviva, one of the world's major insurance companies, held a hotly-contested auction process last summer to sell roadside assistance provider RAC, the second largest business of its kind in the UK. There was keen interest from a number of bidders but, after months of speculation, longstanding Clifford Chance client The Carlyle Group, a prominent global private equity firm, agreed to buy RAC for approximately £1 billion.
Like most private equity purchases, the deal was a leveraged buyout, meaning that Carlyle funded the acquisition using external financing in order to maximise their potential returns on a future exit from the business, which would typically be by way of a sale or an IPO (an initial public offering of shares in the company on a stock exchange). Clifford Chance played a significant role on the deal, acting as legal advisor to both Carlyle and the banks that provided funding to it. These were led by J.P. Morgan and included BNP Paribas, Credit Suisse, Morgan Stanley, and UBS.
Why did Aviva decide to sell RAC at this point? "Because it was a non-core part of the Aviva business", explains David Walker, Clifford Chance's Global Head of Private Equity, who led the team working on the deal. Facing a slowing economy and the prospect of tighter capital requirements for financial services businesses, Aviva made a strategic decision to focus on insurance and savings products rather than associated ones, such as the breakdown services RAC provides. Carlyle, meanwhile, felt that its expertise could help RAC to grow and become a more efficient, and valuable, organisation.
What role do lawyers play on this type of deal?
Lawyers get involved on big transactions right from the beginning. "The first phase is due diligence", says Mark Storrie, an associate in Clifford Chance's corporate team who worked on the deal. "We looked at key parts of the RAC business to determine if there were any issues that Carlyle might want to know about to factor into their negotiations." Once a buyer decides to go ahead, its lawyers are closely involved in the discussion and drafting of the necessary legal documents. They also advise on negotiation strategy and ensure that the transaction process runs smoothly.
The RAC deal, says David, was particularly complex from a legal perspective. Firstly, he explains, as FTSE 100 member Aviva is publicly listed on the London Stock Exchange: "It has reporting obligations to the LSE that make any type of auction even more intense." Secondly, RAC, as a provider of financial services such as insurance, is regulated by the Financial Services Authority (FSA), so FSA consent was legally required for the deal to go ahead. Finally, adds David, there were legal issues surrounding the relationship between Aviva and RAC: "There were lots of parts of RAC that were intertwined with Aviva and whether it was shared premises, shared employees, shared infrastructure or shared IT, it all needed separating. And then we had the ongoing relationship to consider between the two entities, for example, the extent to which RAC uses Aviva to provide insurance for customers or for itself."
What do trainees contribute?
Trainees may be the most junior members of a legal team at a City firm, but their work is a crucial part of making sure a big deal reaches completion. "Our trainees are invaluable" says Caroline Sherrell, a senior associate who worked on the RAC transaction. "They play an important role in co-ordination, keeping everyone up to speed and making sure everyone understands where the transaction is headed." David adds: "While Caroline and I may be involved in the negotiations of the main documents, there's an awful lot of work going on behind the scenes - due diligence, legal analysis, and logistical work. And if all that happens smoothly, which it did on this deal, then the trainees are doing a good job."
At a firm like Clifford Chance that regularly acts on the largest, most complex, and most prominent deals in the market, the high-quality experience that trainees get helps them to develop their skills quickly. Alex Renouf was one of the trainees who worked on the RAC deal: "It was a very interesting transaction to be brought into, and I gained a lot from it. It was one of my first big closings,and being involved in these really significant deals is the best way to learn."
What does it feel like to get the deal done?
The auction for RAC was particularly competitive, says Caroline: "Aviva was talking to more than one potential buyer right up until the very end, which kept everyone on their toes and meant that things had a greater sense of urgency than they often do." And Alex and the other trainees continued to play an important role in the final stages as Carlyle and Aviva edged towards a binding agreement. Mark explains: "The trainees provided a great deal of support. They were there into the small hours helping to get to the bottom of the last minute problems that were coming up. These were issues that needed a very quick response, and getting answers was really integral to the success of the deal because they were fed through to the team working on the documents to form a part of their negotiation position."
Whether you're a trainee, an associate, or a partner, bringing deals like the sale of RAC to a conclusion is an intense and demanding experience as David explains: "It's very exciting, and there's a great sense of achievement. But equally, you might not have slept for quite a long time - on this deal we didn't know that we were definitely the winning bidder until we actually signed the documents, which was about quarter to seven in the morning, when we'd had no sleep the previous night and very little sleep in the days running up to the signing! So we were excited, but also absolutely exhausted." But for many lawyers in this field, the challenges and working atmosphere of major deals like this one is part of the attraction of the job: "I think you'll find that most of the lawyers that work in our corporate finance or banking practice have a little bit of deal junkie in them", says Caroline. "It's very rewarding to see the product of your work in the press and making industry-wide news."
This deal was no exception on the publicity front - it made headlines and was heralded as a sign of renewed health in the debt markets that fuel the private equity sector. "It was a very large deal for this market", says David. "Carlyle is one of the pre-eminent private equity houses in the world and for them to do an iconic deal like this one is a very significant step forward. "