Direct Line won't wait for private equity

Royal Bank of Scotland’s recently rebranded insurance business, Direct Line Group, is under the careful watch of a host of private equity players, according to latest reports.

This is no surprise as the state-owned bank prepares to spin off the business, which analysts estimate could fetch around £4bn.

Despite the private equity interest, RBS is expected to stick with its flotation plans. It recently raised £500m through a bond sale and overhauled the business, pulling away from unprofitable business and lowering operational costs in a bid to attract investors ahead of a float.

But RBS has yet to be tempted by a firm offer from either private equity or a trade buyer. And the market is beginning to wonder if it will ever actually receive one. A report today in the FT says private equity vehicle Tungsten, which was co-founded by Edmund Truell, the founder of Duke Street Capital, approached RBS to express an interest in bidding for Direct Line.

Doubts have been raised over whether private equity firms could raise the necessary cash to tempt RBS into a sale. This is why it favours an initial public offering, as it believes it can get a better price.

Truell’s Tungsten, which has also been linked with life assurance and pensions business Scottish Widows, is a relatively unknown entity, particularly within general insurance circles.

A trawl of the web doesn’t throw up much about the company’s history or its investments. So this is perhaps the kind of exposure it has been craving. It remains to be seen if Tungsten, or any other private equity players, will make formal offers. But this will not deter RBS from continuing apace with its disposal plans.