RBC to acquire Ally's Canadian auto finance business
TORONTO-- Royal Bank of Canada has announced a definitive agreement to acquire the Canadian auto finance and deposit business of Ally Financial Inc. (“Ally Canada”) for a $1.4 billion investment net of excess capital. Subject to certain closing adjustments and including the excess capital, this results in total consideration of $3.1 to $3.8 billion, depending on the size of the dividend taken out by the seller prior to closing. The acquisition aligns with RBC’s key strategic priority to be the leading provider of financial services in Canada.
“Ally Canada will add significant scale to our existing consumer and commercial auto financing business and will strengthen RBC’s position as a leader in the Canadian auto finance industry,” said Dave McKay, group head, Personal & Commercial Banking, RBC. “This is a strong business with favourable industry dynamics and the combination with RBC provides opportunities to leverage our existing strengths and cross-sell capabilities.”
RBC is acquiring a Canadian auto finance business that offers inventory (or “floor plan”) financing to more than 580 auto dealerships across the country. Its consumer business offers retail financing to Canadian consumers through approximately 1,600 dealerships and has approximately 450,000 consumer loans. The legal entities being acquired include Ally Credit Canada Ltd. and ResMor Trust Company. The book value of the acquired business as of September 30, 2012 was
$3.4 billion, unadjusted for the pre-closing dividend. The net investment of $1.4 billion includes a premium to book value of $0.6 billion.
The combination of Ally Canada with RBC’s existing business will create a player in Canadian auto financing business with approximately $24 billion in receivables, offering floor plan financing to more than 890 dealerships. RBC’s consumer business will offer consumers financing through approximately 4,000 dealerships. The combined portfolio will have more than one million consumer loans.
RBC expects the Ally Canada business to generate approximately $120 million in net income on a standalone basis in the first 12 months after closing (before integration costs, amortization of intangibles and transaction costs), based on estimated average receivables of approximately $9 billion.
RBC also announced it has entered into an agreement with General Motors of Canada to become a provider for its subvented business upon close of the transaction. Subvented loans are low rate consumer auto loans subsidized by the manufacturer.
The acquisition is expected to be modestly accretive to earnings per share in the first year after closing. At closing it is expected to reduce RBC’s July 31, 2012 Tier 1 capital ratio of 13.0 per cent on a pro forma basis by approximately 60 bps. On an estimated Basel III basis, we expect our Common Equity Tier 1 ratio to remain above eight per cent following the close, given our strong capital position and internal capital generation.
The transaction is subject to customary closing conditions, including regulatory and other approvals, and is expected to close in the first quarter of calendar 2013.