Billionaire John Malone’s Colorado-based media conglomerate Liberty Media agreed to acquire Formula One Group from private equity firm CVC Capital Partners and a consortium of sellers including F1 CEO Bernie Ecclestone, as reported by ExitHub earlier this week. The deal is based on an equity value of $4.4 billion and an enterprise value of $8 billion.
Liberty Media owns interests in a broad range of media, communications and entertainment businesses, which are attributed to three tracking stock groups, the Liberty SiriusXM Group, the Liberty Braves Group, and the Liberty Media Group. The F1 acquisition price comprises cash and newly issued shares in the Liberty Media Group tracking stock (LMCK), and a debt instrument convertible into shares of LMCK.
The acquisition will be effected by Liberty Media acquiring 100% of the shares of Delta Topco, the parent company of Formula One. Liberty Media has completed the first tranche of the deal by acquiring an 18.7% minority stake in F1 for $746 million in cash. CVC Funds will continue to be the controlling shareholder of F1 until final completion of the deal.
The completion of the acquisition is subject to certain conditions, including the receipt of certain clearances and approvals by antitrust and competition law authorities in various countries, certain third-party consents and approvals, including that of the FIA governing body of F1, and the approval of Liberty Media’s stockholders. The deal is expected to close by the first quarter of 2017.
After completion of the acquisition, Liberty Media will own Formula One and it will be attributed to the Liberty Media Group which will be renamed the Formula One Group, and will remain based in London. The consortium of sellers led by CVC will own approximately 65%(1)(3) of the Formula One Group’s equity and will have board representation at F1 to support Liberty Media in continuing to develop the full potential of the sport. In addition, a CVC representative will be joining the Liberty Media Board of Directors.
Chase Carey, a former DirecTV and News Corp. executive, who continues to serve on the board of Rupert Murdoch’s 21st Century Fox and Sky plc, the owner of Sky News, has been appointed by Delta Topco and will serve as the new chairman of Formula One, succeeding Peter Brabeck-Letmathe, who will remain on F1’s board as a non-executive director.
Bernie Ecclestone will remain Formula One’s CEO.
Greg Maffei, president and chief executive of Liberty Media, said: “We are excited to become part of Formula One. We think our long-term perspective and expertise with media and sports assets will allow us to be good stewards of Formula One and benefit fans, teams and our shareholders. We look forward to working closely with Chase Carey and Bernie Ecclestone to support the next phase of growth for this hugely popular global sport.”
Chase Carey, chairman of Formula One, said: “I am thrilled to take up the role of chairman of Formula One and have the opportunity to work alongside Bernie Ecclestone, CVC, and the Liberty Media team.”
Bernie Ecclestone, chief executive of Formula One, said: “I would like to welcome Liberty Media and Chase Carey to Formula One and I look forward to working with them.”
Donald Mackenzie, Co-Chairman of CVC, commented: “We are delighted Chase Carey is joining Formula One as its new Chairman and that he will be working alongside Bernie Ecclestone. Chase’s experience and knowledge of sport, media and entertainment is as good as it gets and we are very pleased to secure his services. Bernie has been a wonderful CEO for us over the last 10 years.”
In the acquisition the selling stockholders will receive a mix of consideration comprising: $1.1 billion in cash, 138 million newly issued shares of LMCK and a $351 million exchangeable debt instrument to be issued by Formula One and exchangeable into shares of LMCK.
In the 1970s, Ecclestone rearranged the management of Formula One’s commercial rights and is widely credited with transforming the sport into a multi-billion-dollar business.
CVC Capital gained control of the F1 group in 2006 in a leveraged buyout funded with two loans – $965.6 million from its Investment Fund IV and $1.1 billion from RBS, turning the firm into the biggest winner in the history of the Formula One grand prix, a popular segment of the sports betting market.
Over the past decade CVC has halved its stake to 35.5% and reaped a $4.4 billion reward. That has given it a 351.8% ROI and its remaining 35% stake controls the voting rights of F1’s Jersey-based parent company, Delta Topco.
“This gives the stake a valuation of up to $8 billion – and if CVC achieves that price, it will push ROI to over 1,000%, making it the most profitable deal in the investment house’s 34-year history, said The Guardian, adding that CVC “made more from F1 than any other owner in the sport’s 65-year history, including Bambino, the family trust of its chief executive, Bernie Ecclestone,” who holds 5.3% whith his Bambino Trust holding another 8.5%. U.S. asset management firm Waddell & Reed (NYSE: WDR) is said to hold a 20.9% stake in F1.
“Norways’s Norges sovereign wealth fund owns around 4.4% of the company whilst J.P. Morgan has a 3.1% stake,” said Forbes auto-racing contributor and Formula Money co-author Christian Sylt, who added that “a further 3% is owned by the Texas Teachers’ pension fund with around 2.9% in the hands of money manager BlackRock.” F1’s governing body, the Fédération Internationale de l’Automobile (FIA) has a 1% stake, according to The Guardian, and the remaining 4.5% of Delta Topco is held by advisers and management.
F1’s parent company has revealed that “its operating profits accelerated by $76.3m to $329.9m last year as a fall in the value of sterling reduced its costs,” according to The Telegraph. “Recently-released accounts for Luxembourg-based Delta 2 show that in the year-ending December 31 2015 total costs were down $77.5m to $1.3bn on revenue of $1.7bn.”
“Delta 2’s revenue is derived from four main sources – sponsorship, corporate hospitality, TV rights and race hosting fees which are believed to be the biggest cash generator coming to around $715m annually,” The Telegraph added.
Headquartered in Luxembourg, CVC Capital Partners is one of the world’s leading private equity firms. Founded originally in 1981 as the European arm of Citicorp Venture Capital, the CVC Group today employs some 300 people throughout Europe, Asia and the US. The firm was spun out from Citicorp in 1993, as an independent private equity firm. The CVC team’s local knowledge and extensive contacts underpin a proven track record of over 30 years of investment success. CVC manages capital on behalf of over 300 institutional, governmental and private investors worldwide, having secured commitments of more than US$71 billion in private equity, credit and growth funds.
M&A ACTIVITY AND GROWTH OUTLOOK IN RELATED
EUROPEAN SPORTS-BETTING AND GAMING INDUSTRY
CVC has a strong track record in the closely related sports-betting and gaming industry through its strategic investments in Sky Bet (UK), as well as its previous investment in William Hill.
Earlier this year, CVC Capital acquired a majority stake in German gaming company Tipico for close to €1.5 billion ($1.68 billion). In December 2014, CVC acquired Sky Betting and Gaming for £800 million, consisting of five core brands Sky Bet (sports betting), Sky Vegas (online in-browser casino), Sky Casino (premium online casino, live table games), Sky Poker (online poker) and Sky Bingo (online bingo). CVC also made previous investments in British sports betting operator William Hill (2002 IPO exit, at 314% ROI) and the IG Group, a digital trading and betting platform.
“Sports betting contributed substantially to Sisal’s revenues (in 2015), with the Italian market growing by 24.7 percent compared with 2014,” said gaming industry analyst Joss Wood. “The March (2016) revenue figures issued by regulator AAMS show Sisal ranked fourth for online sports betting with monthly revenue of €23.4 million ($26.8 million).”
“Gaming companies with a larger online presence are likely to see higher revenue and EBITDA growth over the next 12-18 months than those more focused on traditional land-based business, as the gradual shift online continues, mobile phone and tablet penetration rises, and fast-growing demand for online games increases,” said Moody’s vice president and senior analyst, Donatella Maso.
UK-based William Hill Plc has the biggest online exposure by revenue, while pure online operator Sky Bet (Sky Betting & Gaming) has the most significant presence by percentage of total revenue. Conversely, Ladbrokes Plc is one of the largest gaming companies in the UK but its digital division still lags its peers and it reported negative EBIT in 2015, according to Moody’s.
While SNAI SpA’s revenues have surpassed Sisal’s following its acquisition of Cogemat SpA and it has gained leadership positions in retail sport and horse betting, “Sisal will remain more profitable mainly due to its more favorable product mix,” Maso said.
SNAI is Italy’s second-largest gaming company after International Game Technology. SNAI is also the leader in sports and horse betting and the third-largest concessionaire of amusement with prize machines and the second-largest of video lottery terminals by turnover.
The online sector’s fundamentals are expected to remain positive for at least the next two to three years, which will support high single-digit growth rates despite regulatory and tax pressures.
Potential legalization of online gambling or further liberalization of the rules that already govern it in some European markets and US states offer growth opportunities for large online gaming operators, which could offset uncertainty in regulatory regimes.
Europe, in particular, continues to see the creation of an increasing number of new regimes that permit licensed and regulated betting, notably through interactive platforms, and which is gradually removing the once dominant monopolistic approach favoring the lottery sector, according to the European Gaming & Betting Association (EGBA).
The continuing growth of professional sport and associated betting markets on a global scale, as a direct result of consumer demand driven by technological advances, has provided both business sectors with clear fiscal benefits and further strengthened their symbiotic relationship, says the EGBA. This has manifested itself in a range of mutually beneficial commercial ventures through direct sponsorship of sporting events, sportspeople and clubs, along with numerous indirect benefits to both products from media advertising deals around sport (where legislative frameworks permit).
In recent years, online gaming markets — including sports betting, poker, casino, bingo, lottery — have grown rapidly to €36.9 billion in 2014 from approximately €6.6 billion in 2003, and are expected to grow to approximately €42.8 billion by the end of 2018, says Moody’s.
The online gambling sector offers growth opportunities for European gaming companies in 2016-17 versus traditional brick-and-mortar operations, despite likely pressure from increasing taxes and regulation, says Moody’s Investors Service.
The recent wave of M&A is likely to continue as operators look to become bigger and more diversified to offset rising costs and compete more effectively. Operators will also increasingly look to develop technology platforms in-house, such as William Hill’s Project Trafalgar, to limit their reliance on third-party providers and reduce customer acquisition and marketing costs, Moody’s added.
Photo: (L-R) Bernie Ecclestone, CEO of Formula One Group, with Donald Mackenzie, Co-Founder and Co-Chairman of CVC Capital Partners.