A new formula for Formula 1

Thinking Aloud

If all goes to plan, Formula 1 is set to have a new owner. John Malone, head of Liberty Media, a US entertainment and communications group, has agreed a takeover valued at $8bn of the global motorsports’ parent Formula One Group, purchasing a 35% stake from CVC Capital Partners. Chase Carey, the Vice Chairman of 21st Century Fox, has been appointed Chairman of Formula One Group, while Bernie Ecclestone, the current Chief Executive, will remain in his position.

CVC acquired its investment in Formula 1 in March 2006 and at the time, many CVC investors were concerned about its strategy. Ecclestone was closely associated with the brand and he had created the business. But he had a reputation of being difficult to control.

Despite Formula 1’s strong brand name and global recognition, there was plenty of scope for operational improvement and CVC successfully introduced many developments to its technology, systems and governance, which observers believed would be difficult to implement under the controlling eye of Ecclestone.

Formula 1 is one of the leading brand names and its logo is up there with Pepsi and Nike, so it makes sense that a large firm such as Liberty Media would have taken an active interest in the business.

This was to underestimate the ability of CVC managing partner, Donald Mackenzie, who sourced and led the initial investment and has remained closely involved throughout its 10-year life, attending many of the races around the world each year. Mackenzie is a no-nonsense businessman with a good eye for a deal combined with the strength of personality to set and enforce the ground rules with the charismatic founder.

CVC were smart to reduce their value at risk of their initial equity investment by replacing that with new debt when lending markets were accommodative. It also introduced new shareholders from Asia and Norway as the business matured.

It is well known that private equity needs an eventual exit and 10 years is towards the longer end of a holding period. CVC were looking at either an initial public offering (IPO) or trade exit and over the years many of the world’s leading media groups have been rumoured to have looked at the investment. The appointment by CVC of Sir Martin Sorrell as a non-executive director would have given the firm access to any boardroom around the world.

Formula 1 is one of the leading brand names and its logo is up there with Pepsi and Nike, so it makes sense that a large firm such as Liberty Media would have taken an active interest in the business.

Bernie Ecclestone is staying on as CEO, reportedly for another three years. How Formula One Group will adapt when the 85-year old Ecclestone eventually retires and whether John Malone will be as effective as Donald Mackenzie remain open questions.


By Guy Eastman, Senior Investment Manager at Aberdeen Asset Managers Limited.  This article originally appeared on the Aberdeen Assest Management ‘Thinking Aloud’ blog on 9th September 2016