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What the valuation on Ferrari flotation teaches us about Formula 1's own sale price

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What the valuation on Ferrari flotation teaches us about Formula 1's own sale price
Oct 12, 2015, 3:04 PM

Ferrari will be floated on the New York Stock Exchange imminently, according to a statement from parent company FIAT Chrysler Automobile.

Ferrari will be floated on the New York Stock Exchange imminently, according to a statement from parent company FIAT Chrysler Automobile.

The shares will trade at between $48 and $52 a share, from October 20th, the high end of that scale valuing the business at just under $10 billion. The shares will be traded under the name RACE, which is highly appropriate, given Ferrari's heritage and the fact that racing is its primary means of marketing.

This is a very high valuation for a niche car brand, especially when many automotive companies have seen fall in recent share price in the wake of the VW emissions scandal. But it reflects the fact that the Ferrari brand is unique and that its pre-eminent position as a luxury car maker is consolidated but that it still has growth potential.

Montezemolo

Manufacturing of Ferrari cars was capped by former Chairman Luca di Montzemolo at around 7,000 cars annually for a number of years, but new chairman Sergio Marchionne is believed to want to expand production to around 9,000 units annually.

The flotation will make a billionaire of Enzo Ferrari's son Piero, who was left 10% by his father when he died in 1988. The rest of the shares are owned by FIAT and will be distributed among its investors, with Agnelli family investment vehicle Exor taking a significant share, enough to exert some control, along with Piero Ferrari's stake.

This flotation will have no real effect on the Formula 1 team; the purpose of the flotation of 17.2million shares or 9.2% of the equity is to raise funds for expansion of other lines in the FCA portfolio like Jeep and Alfa Romeo. We have seen Alfa Romeo branding on the Ferrari F1 cars this season, since Marchionne took control from Montezemolo in a coup last winter.

F1 TV generic

The subject of valuation is interesting at the moment as the current bid into CVC Capital Partners for F1 from Stephen Ross and the Qataris values the Formula 1 business at $8.5 billion, which is 23 times the EBITDA (Earnings Before Interest, Tax and Amortisation) of the business.

This is high for a business that has a possible EU Competition investigation pending, which may lose Red Bull and its sister team and has the main team players, including Ferrari, under contract for only another five years to the end of 2020.

However like Ferrari, it reflects the sentiment that the brand is unique, there is nothing else like it on the market and there is also growth potential.

According to the Financial Times, the CVC board has decided to sell, so the topic of the sale of F1 is hotting up and there will be plenty of action on this front in the coming weeks.

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