It
is now old news that the world renowned British manufacturer of
sporting luxury vehicles, Aston Martin Lagonda Ltd., sought a new
financial suitor, so as to secure the mid and long-term future of the
company.
That
suitor is now known to be Investindustrial, a private equity firm
which with a portfolio imbalance biased toward other sectors, is now
seen to set it sights upon available good quality industrial and brand
assets. Bloomberg reports its purchase of 37.5% stake in AML at a
price of E190m / $246m, seeking to re-vitalise AML in the manner it
did for Ducati, before exiting with a divestment of the motorcycle company
to VW Group.
The
following web-log commentary, written before today's announcement,
provides investment-auto-motives' overview of the prime
issues which sat behind the two 'white knight' negotiations, and is glad to see that the
deal has been amended in order to satisfy the demands of the current
and new owners, and to underpin the financing of a much publicly
admired company.
“Lean-Burn”
Times -A recent assessment by Moodys concluded that a credit rating of “B3” (non-investment) grade should be ascribed; the present clouded circumstance. Obviously resulting from much diminished car, services and merchandise sales, a much reduced income stream and consequential cash-burn, starkly seen by its Q3 2012 figures: an operational loss of £-3.6m, negative FCF of £-27m and a reduced 'cash pile' to £28.4m
Unit
sales fell by 20% to 2,520 vehicles for the first nine months of
2012, all deliveries weakened, unsurprisingly and unfortunately so
regards the 12-cylinder engine models which obviously provide very
good unit margins when actually sold.
Reports
state that adjusted EBITDA in 2011 fell 18% to £76.2m, delivering
approximately 4,200 units. A continuation of the 2012 sales trend
suggest that about 3,360 units would be delivered in 2012.Barclays reports that RandD and SandM costs alone absorb approximately 25% turnover at AML, compared with 12-14% at rivals such as BMW, Jaguar Land Rover and Daimler.
The
Search for Fresh Funding -
Unavoidably,
the firm has been reported as undertaking “advanced”
talks in order to sell new shares to investors, thus underpin its
financial foundations and ensure it may then pursue growth plans.Much of course depends upon the financial standing of AML's backers, press reports stating that the two prime Kuwaiti investors - Investment Dar and Adeem Investment (under the Efad umbrella) – seek to partially liquidate their holdings (originally paying £503m for a 64% stake) to reduce their own debt levels incurred as a result of over-leverage during the GCC asset-bubble years; having already undertaken a $1bn debt restructuring some years ago, and $4.9bn restructuring in February 2012.
Bloomberg reports that the stake being offered is a 40% equity stake of the company, leaving Dar/Adeem (Efad) with a remaining 24%, and offers 50% of the voting rights, which suggests that Kuwait's original participants: Mssrs Al-Mussallam, Al-Qadhi, Al-Humaidhi, Al-Saleh and Al-Roumi are willing to hand over their combined executive powers to any new-comer.
However, seeking to monetise the present and growing future
'goodwill' factor and value inherent within the AML brands, the
Kuwaiti owners are reportedly seeking to recoup the full £503m*
through the announced 40% sale. Thus valuing AML at £1,257,500m
(£1.2bn).
[NB * Investment Dar's website states that it paid “around £500m”,
whilst other reports highlight a figure of £479m – this
'information gap' possibly a result of misinformation or possibly
intentional 'information wars' to assist either side's position].
Kuwaiti Valuation -
Whilst this may immediately appear an over-confident stance given
presently reduced consumer demand for AML's cars and services, this
position may well be taken for one of two reasons. Initially as a
typical formative negotiation tactic, or alternatively, a possibility
that Dar/Adeem is able to walk-away from any lesser deal.
Unlike the general public or capital markets, it recognises that
AML's 'lightweight' technical knowledge and IPR proffers the
potential as a valuable eco-tech vehicle engineering base, able to
apply its abilities to other various vehicle segments and potential
clients.
The Kuwaiti SWF monies that appear to partially bankroll Dar/Adeem
are appropriated as part of the 'national-agenda' drive to expand
Kuwaiti industrial activity into oil related but also globally
relevant activities – eco-tech a prime consideration in the GCC
(see state projects such as Masdar City). Thus AML itself an enabler
of that goal.
[“Extra Extra” Late Insert: it now appears that the Kuwaiti's were
essentially bluffing about their valuation expectation, the price
knocked-down from £503bn for 40% (= £471.5m for 37.5%) to a lowly
£150m – less than one-third the original price. (As described by the BBC and Bloomberg), If the case, and seemingly so, this unfortunately
heavily undermines the credibility of future Kuwaiti negotiational stances and
may affect future BoD influence].
Tipping the Balance -
The current March 2013 forecast of a $73 oil barrel 'low' – this
itself possibly prompting the tentative AML stake sale - may
ultimately prove innocuous if the North American and Chinese
economies rebound more strongly than anticipated in Q1 2013; so
improving Kuwaiti petro-dollar income and the present notion of a AML
stake sale.
However, presently, if the Kuwaiti perception is that a global
economic drag is set to continue - as appears the underlying
assumption behind the British Chancellor's recent Autumn Statement -
then Kuwaiti concern of an ongoing depressed oil price and so reduced
Kuwaiti oil revenues may hasten the desire to avoid 'propping-up' a
cash-burning AML.
Potential Buyers -Press reports state that Investment Dar has received competing bids from Italy's Investindustrial (a private equity firm with a previous raft of sector interests) and India's Mahindra & Mahindra (the manufacturer of utility 4x4s, SUVs and tractors, and a subsidiary of the conglomerate Mahindra Group).
There is also speculation that Toyota had also asked an external
agency to undertake a non-committal general review of AML.
For the moment it seems that Investindustrial has offered only £250m,
whilst M&M has tabled a better figure. But a critical difference
in the tenders is that Investindustrial appears to have co-opted the
application of Germany's AMG company, now a division of Mercedes
Cars, obviously part of Daimler AG.
NB If truly the case, this investment-auto-motives believes could be
a major advantage regards the future technical 'story-telling' for
AML, since both AML and AMG operate in similar spheres, with of
course the powerful 'patronage' of Daimler and its deep connections
into the German and worldwide supplier-base.
An independent desk-research review of AML by
investment-auto-motives, arrived at a very similar conclusion regards
Daimler.
But what stops AML itself from directly approaching Daimler?
And indeed the German wholesale capital markets? A video sequence on FT.com with Lombard Odier discussing US vs European corporate bond demand highlights under-supply of good asset-backed notes within N. European markets.
This achieved via the issuance of fixed income notes to the still highly
liquid markets that offer modest coupon return during these low
interest rate conditions. Tapping the German markets without going
so far as the example of Williams GP Engineering, which now trades as
Williams F1 in Frankfurt.
McLaren – Mercedes set new benchmarks on the F1 track and
commercially with the SLR road car, why should AML not form a
similarly strong relationship for itself now that the McLaren niche
production relationship has diminished, even though Daimler maintains
an 11% stake?
But for the moment, rather than speculate, the intention of this
web-blog is to assess the potential of both InvestIndustrial and MandM
as suitors.
Prior to doing so, it is worthwhile re-capping AML's distant and
recent history, aswell as viewing a 'snapshot' of the entity today
Background
-
Officially
founded in 1913 in Kensington, London, the firm went through
consecutive iterations as the cyclical need for innovation and ever
new funding sources saw commercial surging and stalling across the
decades. It moved to Feltham (SW London) for its first cost saving
measure, then after yet another resurrection in 1947 by tractor
magnate David Brown, onto Newport Pagnell with the acquisition of
Tickford coachbuilders. For decades this site was – and for many
classic vehicle enthusiasts still is - its long time spiritual home;
where the DB series cars (of James Bond fame) were manufactured,
thereafter replaced by the 1970s/80s 'V' series cars.
Recessionary
sales contractions, a string of different commercial owners and
efforts to regenerate the Lagonda marque led to the Victor Gauntlett
era; which via oil-industry association provided for new sales routes
beyond the similarly cyclical UK, Europe and North America into the
Middle and Far East. By the mid 1980s however additional funds were
required and Ford Motor Company took a stake-hold in 1987 under
Walter Hayes, and allowed for creation of the 'new era' DB7, forming
the nascent core of an expanding PAG stable (alongside Jaguar, Land
Rover, Volvo and Lincoln) under the auspices of ex-BMW senior Dr
Wolfgang Reitzle. At the time a prolific ambitious exercise that saw
a new port of call for AML within PAG and access to Ford's then
broad, strategically brand inter-connected, technology fiefdom.
[NB
The gradual divestment of most PAG marques came as Ford re-structured
its operations to concentrate on mainstream high volume operations,
with also the challenge of re-popularising Lincoln in the premium car
segment. However, it is understood that Ford retained a minority
stake worth £40m in 2007 ].
During
the period of PAG formation, Aston Martin Lagonda moved headquarters
to the Gaydon technical grounds in Warwickshire, the site purchased
by Ford from BMW (Rover Group) passing into the hands of TATA Motors
with the JLR acquisition; AML's HQ and 'DB' build-centre understood
to be a leased, highly private portion of that overall site.
The
Present Context -
Since
the 2008 western financial crisis, which itself arguably created the
domino effect of the global economic slowdown, unsurprisingly AML has
suffered a substantial fall in vehicle demand, something which its
business model sought to avoid with a globally balanced geographic
footprint.
However,
it also appears the case that AML's 'thinner' operational funding
stream has left the company at a serious disadvantage to its prime
German and Italian competitors; indeed Germano-Italian in the case of
Audi-Lamborghini , and Germano-British regards VW-Bentley Motors.
A
widening of the competitive gap seen to be ever more evident given
the opposing fortunes of Ferrari compared Aston, within what has been
a challenging macro environment. Ferrari has maintained business
traction thanks to a mixture of glamour association and well
orchestrated product pipeline.
Volume
manufacturers' greater access to various funding sources and in-house
R&D strengths have provided not only resurrection for what were
once fading marques, but a truly tenable commercial path. Volkswagen
(Lamborghini, Bentley, Bugatti and now Ducati motorcycles), Daimler
(AMG), BMW (self-evolved M-Sport) and FIAT (nation-centric Ferrari &
Maserati), all demonstrate the idiom. Yet the competitive playing
field is set to become even harsher as resurgent Japanese
manufacturers now seek to re-invent their past glories in order to
'move up the pricing and margins ladder'; with Honda (NSX) and
possibly Toyota (2000GT) [itself a 1960s Bond movie star], and
engineering-led Subaru seeking new sporting product segments via a
Toyota JV small coupe project, having already interwoven WRC success
into its brand.
Auto
industry observers will rightly point to FIAT SpA's fiscal ability to
provide critical protection of Ferrari and its willingness to
continually fund road and private track car projects, new retailing
projects like 'Atelier Ferrari' alongside its legendary Formula One
programme; at the activist behest of Exor and Agnelli & C. Sapaz
holding interets (via John Elkann et al).
Since
the divorce from Ford, AML has no such deep-pocketed – and
importantly technically assistive – patron, which can both inject
liquidity and offer discounted engineering resource as required.
Yet,
when the current AML led by Dr Ulrich Bez, was sold by Ford in 2007
to its present consortium owners – David Richards, John Sinders and
Kuwait's Investment Dar and Adeem Investments (these sharing a
similar BoD profile) – the company had been created to be
effectively self-sustaining under the healthy economic conditions of
the time.
The
basic competitive needs being to evolve its 'modular' VH platform, to
externally 'price' or internally 'splice' the electrical architecture
from a VM or Tier 1 supplier, and the ability to rely upon (minority
shareholder Ford's) Cologne engine plant for all important
power-train supply continuity. All to ensure that unlike volatile
supply experiences of the past, that the production stream of 21st
century 'DB' and 'V' range of coupe and cabriolet cars, the
(outsourced*) Rapide 4-door coupe , variant specials and the One-77
supercar, would be effectively self-determined.
[NB
to overcome Gaydon capacity limitations and to better explore the
manufacture of higher quantity aluminium structures, Rapide
production was allocated to Magna Steyr in Graz, Austria; also
contractors for the Mercedes-Benz SLS AMG].
To
add more business model stability, the traditional sporting range was
extended to include a new twist: the Cygnet city car – a radical
departure for AML . The model itself an adaption of Toyota's iQ
vehicle and intended to provide a critical “CAFE off-set” regards
Corporate Average Fuel Efficiency of the AML product range, given
ever more pressing western emissions regulations; aswell as a method
by which to gain 'extensional sales' to both current and conquest
clients, and importantly seeking to counter the expected loss of the
larger and far more expensive car sales during recessionary times.
[NB
investment-auto-motives previously stated that Cygnet should have
ideally been released under the Lagonda marque. Though obviously
£25-31k appears a notionally low-end price point for what is a
re-born luxury brand, it reflects the product reality of comfort over
performance, and so would have reflected a very different product and
brand character 'chunky, comfortable and protective' which matches
the luxury SUV dimension upon which Lagonda is set to operate, so
providing better matched city and country cars for N.American,
Middle Eastern, Asian and S.American buyers. However the decision to
badge Cygnet as an Aston Martin was understandable in order to
seemingly reduce public perceptional complexity during a critical
period of expected cashflow reduction ].
Thus,
from a manufacturing perspective at least, AML sets out a strong
business template as the hard business lessons of history have been
interwoven with operational aforethought. Giving a strong fundamental
technical strategy base from which to develop later generation
vehicles, and theoretically extolling the technical learning of the
Aston Martin Racing (AMR) division to enable a vehicle systems
technology trickle-down, so notionally aiding product performance and
efficiency; with much marketing spin to bolster the brand.
But
it is the competitive pace of product change by sector leaders which
has created the greatest challenge for AML.
Whereas
historically a niche volume sporting luxury vehicle maker such as
Lamborghini or Porsche would have had a model life-cycle lasting near
ten years before a wholly re-engineered replacement (and necessarily
longer for true independent, such as the UK's AC Cars, Bristol Cars,
Ginetta Cars, TVR Cars and of course Morgan Cars etc), the then small
size of the marketplace meant that what is now regarded as aged
model's innate status was able to quench the demands of a then very
small market.
But
the advent of an ever expanding global marketplace changed the
playing-field dramatically, and whereas model longevity once had
cache (eg Plus 4 or Blenheim) the 'new money' of a consumer-driven
global market appeared to demand ever shorter and more prolific model
replacement programmes, more akin to the 'planned obsolescence' of
VM production. This was enabled by those “corporate-propped”
major players such as Porsche and Ferrari that sought to leverage
conglomerate abilities to underpin brand standing and income stream
growth. Porsche sought to maintain platform longevity where possible,
obviously with iterations of 911, but has adapted to the market where
necessary to remain dominant, primarily via new model introductions
and constant variant releases. Ferrari however, has used a near
standardised 5/6/7 year replacement cycle for its major models since
the early 1990s so as to lead the super-car pack.
Furthermore,
AML product differentiation appears to have become as highlighted
conundrum, well noted by a certain TV journalist about the DB9 and
DBS models, but evoking general public perception. Though either
series is marketed differently “sporting vs tourer” both sit
inescapably within the GT mold with very similar body-forms, given
DBS' creation from DB9. Invariably some consumers view as AML as
seeking to squeeze “ever more blood from of a (DB) stone” in the
search for per unit margin and company profitability. Value
extraction from precious CapEx is very necessary, but the method of
doing so is vital so as to retain client and public brand faith.
The
different routes followed are seen in a quick comparison exercise: In
2011 Ferrari alone (excluding Maserati) sold 7,195 units compared to
AML's reported 4,200 units. Critically, Ferrari-Maserati's Net
Revenue in Q3 2012 alone was €89m (£72m), versus AML's £76.2
EBITDA for the whole of 2011; simplistically suggesting F-M to be
approximately four times commercially stronger than AML.
The
question is, “why such disparity between the two companies given
their notional innate similarity”. The corporate patronage aspect
has been mentioned, and is of major influence, but another aspect may
well be regards the operational imbalance regards: company dividends.
Whilst
unsupported by evidential fact, given limited access to company
figures and the shallowness of this web-log piece, it may be likely
the case that greater levels of shareholder dividend have been
extracted from AML annually, thus reducing CapEx availability and
operational reserves. The reason seemingly being that prime
shareholders might support respective other automotive and
non-automotive interests. If indeed the case, this of course is their
prerogative, and presumably directs capital toward other 'value
creation' enterprises inside and beyond the auto-sector; good for new
start-ups and new employment. But if the case, may have an effect
upon AML's year on year fiscal stability.
This
is not to say that Ferrari-Maserati may not undergo a similar
experience, it may simply be the fact that any extracted dividends
proportionately above basic earnings are essentially replaced by FIAT
Group's own divisional re-funding. A similar structural ownership and
possible dividends pattern might also now be appearing within VW
Group, as Porsche manufacturing is integrated and Porsche Holding is
able to access and deploy its portion of overall VW group earnings to
create a renewed investment-house ethos able to orchestrate
tomorrow's technology-orientated enterprises.
[NB
In the next web-log, investment-auto-motives will take a closer look
at various VM shareholder structures with influential family and
investor members, to ascertain probable and possible European and
global industrial regeneration paths into the 21st
century]
Assessing
the “White Knight” Options for AML -
The
following provides a scant review of the two prime contenders at this
stage.
InvestIndustrial
:
In
its own words “with
more than €3.0 billion of combined assets under management,
Investindustrial is one of Europe's leading investment groups focused
on taking control positions in Southern European medium size
companies that are leaders in their fields. Our aim is to create
long-term value by helping portfolio companies to accelerate
international expansion and improve operational efficiency”.
This
holding company's name is intentionally devoted to what are now seen
as undervalued industrial assets; especially so the case given
ongoing Mediterranean woes, the firm's targeted focus. However to
date its portfolio reach has (and still) spans three arenas: a)
Manufacturing, b) Services & Concessions, c) Consumer Retail &
Leisure.
However,
as the economic tide has turned from demand-led, credit-fuelled
consumerism toward a new era of supply-led 're-industrialisation' it
has exited (or “realised”) many of its former holdings, and
appears to be 'next phase fundraising' with greater industrial bias,
seen by the current scarcity of industrial holdings. The following
lists shows retained vs sold interests as shown on its website
(though may have not been updated):
Industrial
Manufacturing....Present: AEB Group (beverage & food services), Polynt (plastics)
Realised: Contenur (waste & containers), Italmatch Chemicals (chemicals), Johnson Radley (glass-making tools), Permasteelisa (steel sector), RTS (robotic technologies).
Services
and Concessions....
Present:
Banco Popolare di Milano regional banking), Applus (Engineering
Testing & Construction), Cogetech (gaming sector), SNAI (gaming
sector), Inaer (emergency helicopter services), TSC (ambulance
services), Panda Security (IT software),
Realised:
Eutelsat (satellite broadcasting), Logic Control (business software),
Sirti (telecom & railway networks),
Consumer
Retail and Leisure....
Present:
Port Adventura (holiday), GruppoCoin (fashion apparel), Stroili Oro
(retail outlets), Morris Perfume Holding (perfumary consolidation),
Svenson (medical),
Realised:
Ducati Motorcycles (sold to VW Group via Audi-Lamborghini division),
Karrimor (adventure equipment), Mountain Warehouse (adventure equip
retailer), GardaLand (theme-park), Care (Spanish nursing homes),
Castaldi Illuminazione (architectural lighting), Recoletos
(publishing), Ruffino (wine-making), Zero9 (branded various).
This
then highlights Investindustrial's desire to re-balance its portfolio
towards high-value manufacturing that broadens its geographic
footprint. Interestingly the interest in AML runs counter to its
usual / previous Mediterranean focus, unless it has an intent to
relocate any possible low-value content to S.Europe. And the fact
that it has representation in Switzerland, Luxembourg, Spain, UK, USA
and China suggests that whilst S.Europe may provide possible
'cigarette butt' opportunities, its intent is far broader.
A proclamation has been made that it can leverage powerful synergies
with Daimler's AMG division on behalf of AML, a compelling attraction
for AML given its need to ideally amortise CapEx, RandD and
production costs and so gain greater margins over the cost of
capital.
A
more likely possibility could is that Investindustrial would seek to
effectively 'store and flip' AML, either to Daimler AG, or perhaps
even to FIAT SpA, to conjoin with Ferrari-Maserati, and so
substantially bolster the business case for Maserati, create shared
volume with Ferrari GT cars, aswell as enabling mid-engined Aston
Martin products, an ambition previously cancelled by the British
firm.
Thus
Investindustrial would have two apparent exit possibilities, as VMs
themselves eventually regain strength and seek new acquisitions to
bolster their own brand stables and competitive positions.
This
seems the prime case, given that presently Investindustrial has no
directly synergistic connections with AML (or indeed AMG) within its
portfolio of companies.
[NB
the very existence of the V12 Vantage 'Carbon Black' edition has
intentional or not referential overtones with Mercedes Benz AMG Black
series vehicles, whether to directly compete, or attract Daimler's
attention, or probably both].
[NB
In 2009 investment-auto-motives undertook an independent, proprietary
study which concluded that the optimal route for securing AML's
future was a JV with Daimler, other VMs at the time less suited to
acquisition or merger given the paucity of funding and/or additional
operational complexity].
Mahindra
andMahindra:
MandM
is a renowned name in India and across Asia, one of the world's
biggest tractor producers, a manufacturer of utility 4x4s, micro and
medium flat-bed trucks and hard-body trucks, and over the last decade
a natural expansion into mainstream SUVs. Efforts to enter the
mainstream Indian compact sedan car segment (vs TATA and others) more
problematic as an attempted JV with Renault resulted in a short
production run of CKD assembled Logan vehicles, many of which were
directed toward the taxi market. And ambition to enter the highly
competitive and high expectation US pick-up truck market, using a CKD
entrance model, has rightly been indefinitely delayed given the
likelihood of failure, aswell as arising legal complications cited by
some N.American dealers. It also has a controlling stake in
S.Korea's Ssangyong Motor (4x4s && SUVs) and the Indian EV
producer REVA.
As
quoted commentators have rightly stated over this week, there appears
little innate overlap or mutuality between MandM Motors and AML,
concerns that given rival TATA Motor's now successful ownership of
Jaguar Land Rover, that an MandM bid may simply be to capture a
'trophy asset' to try and seemingly equal TATA. Such a move lacks any
comparative accounting rationality, given the massive production
capacity difference between the two firms, and presents little in the
way of an immediately applicable technology transfer in either
direction. MandM may see itself in a PR positive 'white knight'
role, providing the necessary funding until Aston Martin (and
Lagonda) obtains a better sales footing, and perhaps vitally by doing
so earn favour with the UK government by which to ease the
international ambitions of other Mahindra Group companies. These
broader activities range across: vehicle components, (entry-level)
motorcycles, energy generation, aero sector, defence sector,
agricultural equipment, education, hospitality, IT, logistics, luxury
boats, retail, sports, “lifespace” real estate and consulting.
Mahindra
Group cites its worth at $15.9bn, operates in over 100 countries and
employs more than 155,000 people.
So
although no direct industrial synergies seem to exist between AML and
MandM Motors, besides the radical and remote possibility of
engineering an all-new hi-tech Mahindra sports car, or using AML as
an exploratory R&D laboratory, any decision to try and purchase
AML might be seemingly theoretically justified by assumptions that
AML technology and know-how could be drip-fed into across the Motors
division and into other hi-tech or potential hi-tech divisions such
as aerospace, motorcycles, defence and boats; with perhaps an idea of
marketing its luxury boats alongside Aston Martin cars.
However,
another thought from investment-auto-motives is that MandM instead
seeks to serve the Indian national good by ironically corroborating
with its auto-sector peer. Thus – like Investindustrial – the
rationale could be to 'store & flip' the company for latter-day
sale to TATA Motor, so that it may eventually merge of AML with
Jaguar Cars' operations (within JLR), an easy action given
operational proximities at Gaydon and a very efficient method to both
boost platform volumes on what are today dimensionally closely
related low-mid volume sportscars.
This
would increasingly de-couple AML from the original lower volume
engineering methods utilised for the technically flexible (regards
track and wheelbase) but costly 'VH modular' component set; itself a
proportionate mix of aluminium and affordable composite. And allow
manufacturing strategy to evolve along a path which allows it to
encompasses (by niche model standards) a mid-volume output,
developing the lessons learnt in the Rapide project. Aspects of the
old 'VH' technologies perhaps only retained for the largest,
halo-type products, which may or may not include the dedicated
engineering solutions of the One-77 aluminium & carbon-fibre
structure. So for core vehicles, utilise a more conventional all aluminium monocoque type structure (with composite parts as required high price variants) for fabrication and assembly ease of higher output, developed in Rapide and adopted by Jaguar (and Land Rover / Range Rover). The British then, seeking to match the now well established business model of Porsche. Any eventual merger of AML and JLR would undoubtedly provide for a more robust rational for each brand to offer an efficiently produced 3-tier range using common platforms and technologies: (small) 'F'-Type and Vantage / (mid) 'XK-Type' and DB-series / (large) 'XX-Type' and Vanquish. It would allow for greater choice regards systems applications and provide for improved variant business modeling sensitivity.
This,
investment-auto-motives believes, is the only rationally feasible
raison d'etre for MandM. To appropriate knowledge-transfer and
tech-transfer where possible during its ownership, and to when
optimal, sell AML onto TATA – JLR. This a very powerful exit
strategy given the assumed re-growth of the luxury sportscar market
and rationalisation of AML's company and financial structure, thus
presenting TATA's new incoming chairman Cyrus Mistry to seize a
'bolt-on' opportunity that directly advances Ratan Tata's efforts to
date.
Conclusion -
Aston Martin Lagonda Ltd has undergone a massive transformation over
the last two decades, taken as the 'English Patient' under Ford's
wing, revitalised and put into new ownership under the highly regarded direction of
Bez and phase-financed by Richards, Sinders and the financial muscle of Kuwaiti SWF
companies.
The mid-point of the 2000s were by far AML's glory years, able to
metaphorically and financially 'bank' the efforts that had been
injected previously. The new consortium's purchase in 2007 was
understood by investment-auto-motives at the time understood to be at
valuation peak given the subtle creaking of the financial system a
year before its eventual implosion. That massive economic contraction obviously took a great toll on AML, but it sought to strive-on – whilst not regardless of the times, perhaps in an over-confident manner - with a seeming belief that the recession would resolve itself within the normal historical timeframe. That was never to be the case, far more a right-leaning 'W' or ''J' given the 'new norm' that had set in but not be wholly appreciated.
This then arguably meant that AML did not realise the level of
fundamental change that had occurred, but recognised the ongoing need for business template development, so necessarily and imaginatively
undertaking new efforts in customer service and merchandising, aswell
a being daring enough to introduce the radical Cygnet. These were
very good efforts by Dr Bez to diversify income streams so as to
better balance the business model.
But they were as of then unproven and there was little way of
understanding whether such efforts could effectively finance, or at
least heavily contribute towards, ongoing expansionary plans such as
the ambition of the world-class One-77 supercar. AML thought it could
drive through the 'economic black ice' as long as the steering and 'foot-down' propulsion remained unaltered.
By 2009, investment-auto-motives had concerns about the cost impact and financial return of the One-77 project, given the then dire economic climate it appeared a vanity project, a late-comer to a fading party with Bugatti Veyron, McLaren-Mercedes SLR, et al, and drew an observational parallel to the likes of the loss-making Jaguar XJ220 created in the late 1980s. Unarguably a fantastic engineering achievement which blends F1-tech with craftsmanship, and so a wonderful collectors piece, with the realised ambition to match the brand and product benchmarks of Veyron, SLR and MP4-12C.
But at what true cost to the health of AML cashflow and its near-term balance sheet? The cash call now being seen undoubtedly has been hastened by that astounding but costly supercar exercise.
Aston Martin Lagonda now faces a very very different era, whilst it awaits an upturn in core vehicle demand and seeks to gain full RRP for its special editions, it seems that the very foundational structure of the company will need to be deeply assessed.
It appears that Investindustrial believes it can replay its Ducati success, pumping monies into product range expansion and distributor/dealer expansion, awaiting the eventual upturn.
Expectantly, investment-auto-motives believes that like a classic Aston Martin vehicle returned to Newport Pagnell for detailed inspection, sensitive repair and maintenance overhaul, that the very business structure of AML must fundamentally re-assessed – a review akin to the x-ray of an aluminium component. Altered as needed, if it is to commercially mimic the power of its legendary cars.
Investindustrial will hopefully seek to undertake such an exercise, for the long-term benefit of all: shareholders, management and staff, valued clients and the public alike.
