Price is likely to be the sticking point in sale by government-owned bank. Liz Bury reports.
Lombard has opened the door to buyers for its contract hire business Lombard Vehicle Management which it designated as non-core last June.
The sale is thought to reflect the strategy of Lombard’s parent bank RBS to shrink its balance sheet and to reduce the need to obtain funding.
Lombard’s choice of timing means that it will likely realise a better price for the disposal than in would have done at the height of the recession in 2008, since residual car values have now stabilised and business growth returned, albeit patchy. LVM returned to profitability with after-tax profit of £15.6m in 2009, compared to an after-tax loss of £17m in 2008.
Julian Humphreys, former MD of Private Label Leasing, who recently joined consultancy Invigors to help in developing its fleet expertise, said: “When the global crisis hit two to three years ago, new and used car residual values took a hit.
“Now they have bounced back, so they might be able to sell LVM for a sensible price which was not possible back then.”
To make a purchase attractive, potential buyers would need to identify an element of strategic value to the deal beyond simply acquiring more car leasing.
Humphreys said: “It could be a mid-size player not having the economies of scale they desire, or it could offer the buyer an IT platform. Alternatively it could be a springboard for a new company to enter the market.”
Potential buyers include global contract hire giants Arval, GE Capital, ING Lease, and Leaseplan, and financial institutions with a good cash position. Middle east investors could also come forward if they are looking for a profitable investment over the long term.
LVM increased its number of small fleets on contract hire by 23% in the year to 30 September 2010. It currently manages 100,000 cars and vans, with clients including AA, which it has serviced for 15 years, and British Gas, BSkyB and IKEA.
Margin Squared director Professor Colin Tourick said: “There will be buyers, there is no question about that. Over the long term, LVM is a profitable, nice, big, juicy player.”
“The idea of picking up the third-largest contract hire company in the UK would be appealing to a lot of the existing operators in the market. There is still a view that bigger is better in car leasing: the bigger the company the more economies of scale.”
See also: Lombard: ‘We want to lend’