Quindell pens record-breaking RAC deal

Quindell, the provider of software for the insurance and telecoms markets, on Monday signed what it described as the world's largest telematics contract to date.

It is a joint investment with the RAC in a new company, Connected Car Solutions Limited, to distribute Quindell and the RAC's combined connected car capabilities, with Quindell retaining a 51% stake.

Around four million paying subscribers will be targeted by the new venture longer term, excluding RAC breakdown members. RAC and Quindell have agreed the venture will take 100% of the benefit from addressing the cost of claims from RAC connected car consumers whilst focusing on driving down the cost of claims and improving the customer experience following an accident or breakdown-related event.

The new venture will also address other global opportunities, including fleet in Europe, and longer term there could be value generated beyond connected car utilising Himex Digital World for initiatives including connected home and connected health.

The initial investment for Connected Car Solutions is £30 million, with a further £70 million to be invested longer term subject to a set of milestones. Investors have long been concerned about cashflow, but Quindell will meet its share of the initial funding as part of the £50 million it set aside for investments from its recent £200 million fundraise, having spent approximately £30 million of this to date. The remaining £150 million raised is to support £450 million of organic growth, and the company says this target has been exceeded with new business valued at £500 million plus per annum since the November 2013 fundraise.

Share warrants issue

However, Quindell has agreed to issue further share warrants to the RAC to compensate the organisation for its unique positioning in the market. These new warrants, which will be over a further 250 million shares in the capital of Quindell, are exercisable at 50p per share, equating to a value of £125 million.

The warrants will be exercisable at any time by the RAC during the following 24 months, subject to vesting conditions and any profits achieved above the cost of the warrants will be subject to lock-in arrangements from 12 to 36 months. Quindell has also agreed to waive the requirement for the warrants issued to the RAC in June 2013 to be exercised at the time of Quindell's move to a full listing.

The roll out of the RAC telematics proposition to 2.1 million consumers commences in July 2014. The target is for subscribers to be paying between $5-15 per month, equating to $720-2.2 billion per annum in high margin recurring revenues.

The joint investment follows a successful year for Quindell's existing outsourcing contract with the RAC, which had resulted in improved member awareness of the service. The service delivers a 20% reduction in the total cost of claims by addressing the total cost of claims, including the provision of a quality legal and rehabilitation service for members, rather than simply focusing on recovering and repairing vehicles.

Rob Terry, founder and executive chairman of Quindell, said the firm was delighted to forge new contract with "such a distinguished and respected brand as RAC" and that Quindell's model "will revolutionise the insurance industry, through a combination of innovative technology and integrated supply chain stamping down the cost of claims whilst above all improving the customer experience".

The AIM-listed company recently announced soaring revenues for the full year, up by 133% to £380.1 million, which doubled profit before tax to £107 million. The company said it has beaten market expectations for 12 quarters in succession, and cemented plans to move to the main market, anticipated before the FTSE indices review in early June.

The shares rose 7.5% this morning to 42.19p.

Investor view

There were mixed positions on the Interactive Investor discussion board, with some investors suggesting that these kind of share-price rises will not be sustained and others saying that the rises are small in relation to "the huge global potential, telematics not just for UBI, but also for car performance monitoring linked to RAC breakdown".