A major telematics venture has been canned as black box provider Quindell is forced to buy out the RAC from their joint company, Connected Car Solutions.
Quindell, UBI telematics provider, and insurance breakdown firm the RAC had both invested £15 million to create company Connected Car Solutions (CSS) in April this year, with a further £70 million committed in the future.
But now the company has been restructured, Quindell announced this morning.
The company stated: “Due to market conditions beyond the control of either Quindell or RAC, the parties have concluded that it is not the best use of capital for either party to finance a free telematics rollout to consumers as initially planned.
“It is now in the best interests of both parties to restructure CSS and for Quindell to acquire RAC’s interest in CCS and continue their strong working relationship both in respect of existing contracts and in the future."
Quindell supplies car manufacturers, telecommunication and insurance companies with insurance services, including telematics and IT systems. Its customers include BT, Aegon, Aviva, T Mobile, Vodafone and Honda.
The announcement confirms speculation that the aggressive rollout had encountered roadblocks. The venture recently faced scrutiny following reports CSS had yet to deploy any hardware.
TechMarketView analyst John O'Brien said today: "We believe there would have been significant reputational risks to the RAC on this JV with Quindell around unproven telematics technology services.
"Withdrawing now creates a clear line of accountability on the original contract between RAC as the customer and Quindell bearing the risk as the outsourcing supplier. It also frees up the RAC to ‘go-it-alone’ should it wish to brand its own telematics offerings into the market.
"It also proves that Quindell’s ambitious land grab in the emerging telematics BPS market is not going to be all plain sailing. Other competitors are also soon to be knocking at the door."
The initial deal saw the RAC offered 250 million shares in Quindell, once the firm’s share price reached 50p or more in the two years following the deal. At signing, Quindell had a 43p share price.
But the 115-year-old RAC has also been put under pressure as Quindell was widely criticised by short sellers, which plunged its share prices. Gotham City Research was critical of the supplier's business model in a report.
The deal would also have had negative effects on Quindell’s finances.
Quindell’s cash more than halved within six months and added pressure to back the Connected Cars Solutions venture would prove problematic as the firm needs significant amounts to process insurance claims. The financial times reported that it has £60 million in bank borrowings alongside its debt.
“Quindell now benefits from 100 percent of the profits from CCS ensuring this restructuring will not negatively affect Quindell’s profit expectations, now to be delivered on lower turnover with an improved cash profile,” the company said.
Rob Terry, Quindell's chairman, said: “The relationship between RAC and Quindell remains strong and we will continue to work closely together in key areas, including in relation to the servicing of claims arising from RAC’s connected car offering and potentially through the ingenie brand. These revised terms are in the best interests of both companies.
"Quindell has a number of exciting new contracts in the telematics and connected car space and is confident of achieving its targets in this area. The board continues to have confidence in its previous guidance in respect of cash and profitability for 2014 and beyond.”
Terms of the restructuring
- Net cost of restructuring is £3.5 million to be paid to Quindell in cash over a year-and-a-half; gross £18.5 million offset by RAC cash payments of £15 million from RAC
- Quindell keeps 600,000 connections (including phone-based apps)
- RAC gets back brand licence, customers and sales pipeline in its telematics area (7.500 connections plus sales pipeline)
- RAC gets a royalty-free, independent license for Quindell and CCS telematics technology
- Shares for the joint investment are cancelled, but shares in an outsourcing contract for car accident claims handling (16.67 million shares) remains.