NOVEMBER 25, 2005
Will CVC keep F1 shares?
The acquisition of the Formula One group by CVC Capital Partners begs an interesting question: will the firm hold on to the business and build it up or is it looking for a quick profit? Formula One is undervalued because of the lack of development in some areas of the sport and because of the uncertainty about the future. In the case of Dorna, CVC's other sports management company, the company has allowed the business to grow, rebranding the 500cc Motorcycling World Championship as MotoGP and building up the business. But in other cases it has been a different story. CVC acquired car accessories firm Halfords in August 2002 and floated it on the stock exchange in London less than two years later. In the case of department store Debenhams it was a rather different story, with CVC acquiring the business by taking the company off the stock exchange. In the case of the Automobile Association, acquired a year ago, there has been no sign of a sale but the tyre-fitting business Kwik-Fit, which CVC bought in August 2002 as sold in June 2005. Another automotive company, originally called Empe, which supplies car interiors to major manufacturers, CVC acquired the business in 1995 and only sold it last year.
The answer to the question therefore is that CVC buys and sells companies when it sees that it make the most profit possible. In the case of F1 that profit is going to come from a settlement over the long-term future of the sport and in reorganising areas of the sport which are currently under-developed.
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