McLaren sells stake in racing unit to U.S. investors

McLaren Group has agreed to sell as much as 33 percent in its racing unit to a consortium of U.S.-based investors led by MSP Sports Capital, as the UK company looks to raise funds to fix its finances while focusing on its automotive unit.

MSP Sports Capital will invest 185 million pounds ($245 million) in McLaren Racing to acquire an initial 15 percent stake, which will rise to a maximum of 33 percent by the end of 2022, McLaren said in a statement. The transaction would value the racing unit at 560 million pounds, the company said.

McLaren Group, which includes Automotive and Racing divisions as well as an applied technologies unit, is majority-owned by Bahrain's sovereign wealth fund Mumtalakat.

"The cash will immediately go into racing so they can fund the operations," Executive Chairman Paul Walsh said on Sunday. "What we have now done is fundamentally ring-fence Racing. So the cash requirements of the next two to three years, McLaren Group does not have to worry about," Walsh said.

McLaren needs to refinance bonds due in 2022 and fix its finances to continue developing models that will allow it to compete with the likes of Ferrari.

The closely held company has previously said it’s considering a sale of its headquarters in Woking, near London, and is reviewing options for its division that manufactures parts for Formula One racing teams and does contract work for other third parties.

Plans to sell and lease back the headquarters remained unaffected by the new investment, Walsh said.

"We will have to refinance our debt... I don't like a lot of debt, so if we can get a very efficient piece of capital put in place through the sale and leaseback with our long-term commitment to stay there, why wouldn't we do that?," he said.

Walsh said the McLaren Group is optimistic about the prospects for its automotive business.

McLaren Automotive represents the majority of group revenues.

"The way to look at McLaren is that we have a highly profitable cash-flow positive automotive business," Walsh told reporters on Sunday.

"Yes, we have had temporary setbacks as all companies did during the pandemic, but already we are starting to see a revival in demand," Walsh said. "That's probably been led by activity in Asia, but I see that coming through to Europe and then progressively the U.S. so we're optimistic around our prospects for Automotive."

McLaren has been struggling since the pandemic ravaged industry sales. A 300 million-pound equity raise early this year proved insufficient when revenue collapsed once the coronavirus forced companies to shutter factories and dealerships.

McLaren probably needs to raise about 130 million pounds to boost liquidity to levels in line with its peers, Joel Levington, a Bloomberg Intelligence credit analyst, said in a report Thursday.

"McLaren’s use of financial leverage is very aggressive, given its history of negative cash generation and niche positions within highly cyclical and capital-intensive markets," Levington said.

Separately, McLaren said it is interested in entering Formula E once the company's battery supply contract ends in 2022 and the electric series introduces its third-geneation car.

McLaren Applied Technologies is the exclusive battery supplier until 2022. Williams Advanced Engineering has the next contract.

"We have been precluded from competing in Formula E because we were the battery supplier, so within that FIA tender we are not allowed to compete as a team," McLaren Racing CEO Zak Brown said.

"With the new generation car coming in 2023, and us no longer being the exclusive battery supplier, that’s a racing series that we find very interesting," Brown told reporters at Formula One's season-ending Abu Dhabi Grand Prix on Saturday.

Formula E, an official FIA world championship, has a strong manufacturer interest despite recent announcements by BMW and Audi that they would be leaving at the end of next year.

Formula E chairman Alejandro Agag said last week the exits would potentially free up only one slot in the 12-team series, however, since BMW were technical partners of entry holders Andretti Motorsport.

McLaren is also involved in IndyCar and interested in the World Endurance Championship (WEC) and its highlight 24 Hours of Le Mans.

"Those two series (WEC and Formula E) have our attention, and we want to get through this season, we want to make sure that anything we do is not a distraction to our Formula One efforts," Brown said.

Reuters contributed to this report