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June 26, 2012, 12:02 a.m. EDT
Commentary: The $2.5 billion IPO may be too ritzy for investors
Image by mjohn2101 via Flickr
TEL AVIV. Israel (MarketWatch) — The real hot seat in Formula 1 may not be inside Michael Schumacher’s Mercedes, but rather in the boardroom when the executives meet to finalize the timing and pricing for its much-anticipated $2.5 billion Singapore initial public offering.
With recent share sales by F1’s major shareholder implying a valuation of F1 at a ritzy $9 billion, its flamboyant 81-year-old chief executive, Bernie Ecclestone, may need to kick his cherished car racing empire into high gear to convince investors. And F1 is not the only lucrative licensing company on the circuit, either. If investors are willing to trade in fast cars for a couple of beloved fictional cartoon characters, ahead of F1 in the grid is Walt Disney Co. DIS +1.31% and Hello Kitty’s Sanrio Ltd JP:8136 +0.11% .
Who is holding pole position in F1
The FIA Formula One World Championship may be the most viewed sporting championship in the world with an annual audience of over 500 million, but the most interesting viewing is how the British-born Ecclestone found his way into the F1 driver’s seat. Through four decades of dealings and legal tussles, a former race car driver himself, Ecclestone, managed to steer the F1 commercial rights away from both the industry body and the race drivers association.
Today, F1’s shareholders include Ecclestone (5.3%), his ex-wife, Slavica Ecclestone (8.5%), together with private equity fund, CVC Capital Partners (35%) , Lehman Brothers (15%), Waddell & Reed Financial WDR +1.35% (21%) and others including BlackrockBLK -0.86% and Norges Bank, Norway’s sovereign wealth fund.
| 2011 | |
|---|---|
| Revenue | $1,520m |
| EBITDA | $684m |
| Net Income | $358m |
| Enterprise Value(est) | $9,100m |
Source: UBS
Unquestionably, F1 is a winning brand and a trophy asset. Its 20 races in 19 countries generate close to $1.5 billion in annual sales. In fact, by 2016, UBS analysts estimate that there will be 22 races and F1’s annual sales will have grown to $2.4 billion at a healthy 25% profit margin. Such is the glamour of the F1 business, rumored buyers in recent years have included a consortium led by Rupert Murdoch’s News Corp. NWS +3.05% and an investment unit of Fiat IT:F +1.88% and Ferrari’s Agnelli family, and Carlos Slim of Mexico, the world’s richest man. (News Corp. is the parent company of MarketWatch.) The financial effect that F1 can have on a host city from tourism and other services is unmatched by any other sporting event, including the Olympics — this, despite the fact that F1 generally hoards all the trackside advertising or broadcast revenues for itself.
But just how sustainable is F1’s growth, and have we begun to see its wheels slowly fall off? In the past few years, Honda, Toyota and BMW have all pulled out as race teams, unable to generate a meaningful return on their investments.
Formula 1 vs. Disney and Hello Kitty…
More at Apply brakes before investing in Formula 1 – MarketWatch
Ben Weiss has worked throughout the Asia-Pacific region for hedge funds and private equity firms. He runs a boutique venture capital firm in Hong Kong.
F1QA 