CVC to exit F1 after roaring to 450% return on stake

CVC has used F1 as a calling card to raise more money from institutions, including Singapore sovereign fund GIC.
CVC has used F1 as a calling card to raise more money from institutions, including Singapore sovereign fund GIC.PHOTO: AGENCE FRANCE-PRESSE

NEW YORK • It was considered one of the riskiest private equity investments ever.

CVC Capital Partners, a mid-sized London-based firm in 2006, paid a steep US$2 billion that year to buy Formula One (F1), the world's dominant auto racing circuit, in a deal that included nearly US$1 billion in equity. The timing was not great. A number of racing teams were threatening to bolt in a pay dispute. The deal's success also hinged on F1 founder Bernie Ecclestone, the domineering boss who would later sidestep bribery charges. 

Yet just a decade later, F1 has turned into a spectacularly profitable deal for CVC, catapulting the former Citigroup unit into a top global buyout firm.

CVC has made about US$4.5 billion (S$6 billion) on its initial US$1 billion stake, a 450 per cent return that is twice the average for private equity. Much of that came when CVC loaded F1 with debt to pay itself dividends - too much so in the eyes of critics. 

Now the firm is looking to exit the investment, possibly in a matter of weeks. After an aborted initial public offering in 2012, it is actively shopping the firm and has retained Goldman Sachs to solicit buyers. The price tag could be as high as US$10 billion.

CVC, with a 35 per cent stake, could walk away with a total return of eight times its original investment. The most likely suitors are media companies hunting for programming content rather than another buyout firm. Mr Rupert Murdoch's Sky, the Qatar Investment Authority and RSE Ventures, chaired by Miami Dolphins owner Stephen Ross, are interested in investing, said people familiar with the matter, who asked not to be identified as the process is private.

Not everyone is as pleased with the outcome, citing declining F1 attendances in some markets and the large dividends to investors.

In a brief telephone interview, Mr Ecclestone said that CVC is "pretty upfront" about its returns. "They buy and sell companies looking to make a profit," he said.

CVC has used F1 as a calling card to raise more money from institutions including the California Public Employees' Retirement System and Singapore sovereign fund GIC, which took a stake in the firm in 2012.

CVC has grown into Europe's largest private investment shop and the world's ninth biggest, with US$85 billion under management, according to data provider Preqin, making inroads in the US market with stakes in Pilot Flying J, BJ's Wholesale Club and Petco Animal Supplies.

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A version of this article appeared in the print edition of The Straits Times on August 10, 2016, with the headline 'CVC to exit F1 after roaring to 450% return on stake'. Print Edition | Subscribe