RBS’s decision to stick with an IPO rather than opt for a private equity sale has put its insurance arm back into the spotlight

The latest news surrounding Direct Line Group (DLG) ends a long-running ‘will it, won’t it?’ saga. Reports over the weekend claimed that The Royal Bank of Scotland has decided to spin off its insurance arm through an initial public offering (IPO) and will not sell the business to a private equity outfit.

The IPO route has always been RBS’s preferred option so it comes as no surprise that the bank is sticking to its original plan. But with the markets in the UK and Europe still extremely volatile it will need to hope that investor confidence is high to allow it to achieve maximum returns for shareholders.

To aid this, RBS said earlier this month it would list DLG in three separate tranches – one this year, one in 2013 and the rest of the business in 2014. This would also let it meet the deadline for disposal ordered by the European Union.

Private equity had courted DLG for many months and was expected to pay between £3bn and £4bn for the business. There had also been talk that private equity firms would try and force RBS into a cut-price deal. This may have helped sway the decision to go down the IPO route.

Sources close to the situation also said former RSA boss Andy Haste had been lined up to either lead a private equity bid or IPO for DLG. Haste was understood to be leading a private equity consortium comprising Blackstone, Bain and Advent. But there is also suggestion that Haste could be brought in to lead the IPO because of his standing in the City.

The decision to float could also hand a timely boost to several UK broking firms with IPOs in their sights. Hastings, Towergate, Hyperion and Cooper Gay have all mooted IPOs, but have either delayed plans or expressed concerns over the challenging financial climate. If the DLG float is a success, these firms could rethink their plans. There will be plenty of eyes on DLG over the coming months, that’s for sure.

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