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Monday, 18 June 2018

North America Secondary Equity Issue: Formula One's US$1.4bn follow-on

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Short shifting

It is perhaps apt that Formula One made quick work of a shift in ownership, transitioning from CVC to Liberty Media and onto the public markets in less than a year. The speed is all the more remarkable as CVC had owned the motor racing franchise for more than a decade and twice before had attempted to sell.

The US$1.4bn follow-on stock sale in May was the standout of several ECM transactions in the year as CVC accelerated away from its former asset.

The selling shareholders led by CVC received 138m Liberty Media Series C Formula One shares as part payment for F1, with 62m sold off-market in December 2016 and another 19m sold back to Liberty in January. 

F1’s former owners still owned a third of the company but as a known seller just two days of marketing were needed – and still the deal could be upsized.

Goldman Sachs, JP Morgan and Morgan Stanley sold 40m shares, including 27.1m shares by selling shareholders, at US$31 per share. The US$1.24bn of gross proceeds represented an upsize from the US$1.175bn marketed, with all of the upsize in secondary shares.

The subsequent exercise of the 6m-share all-secondary greenshoe, increased sizing to US$1.4bn and took CVC and co down to 17% ownership. The sellers short-shifted through the next two sales in July and September that saw first 12.5m shares sold to take the residual stake to 11% and then in September – one year on from agreeing the sale to Liberty Media – a final sale that saw CVC exit, leaving just a few co-investors behind on 3%.

For those keeping lap times that means CVC went from 100 to zero in one year – the initial sale followed by three publicly marketed sell-downs, all within lock-up and all at progressively higher prices. Shares were placed at US$25 each in January, US$31 in May, and US$35.50 in July, culminating in US$37.40 in September.

Having been so keen to sell the business through an IPO twice before it is ironic that a one-year exit would have been near impossible to achieve through an IPO with six-month lock-up and subsequent sales. A similar experience has been had by other IPO candidates that have been reached the public market through acquisition by SPACs in the awards period.

The powerful reach of 390m global viewers for the sport and management’s plans to revitalise the flagging franchise was enough to convince 13 of the 19 institutions, both new and existing, seen in one-on-one meetings over the two-day marketing for the May sell-down. Long-term contracted revenues totalling US$7.7bn and low capital need result in high free cashflow generated for equity holders.

To see the digital version of this review, please click here.

To purchase printed copies or a PDF of this review, please email gloria.balbastro@tr.com.

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