“McLaren had a fragile business model”- Executive chairman Paul Marsh explains why McLaren suddenly sold its 15 percent shares.
McLaren recently announced that it has received a massive investment of £185 million from an American firm MSP Sports Capital in return of stake valuing 15 per cent of its F1 racing team.
Though, this investment brings in huge capital to boost McLaren’s aspirations for 2021, at the same time executive chairman of McLaren Paul Marsh explains why this decision is more crucial than thought.
“McLaren had a fragile business model because fundamentally the cash flow from automotive was then deployed into racing,” he said, explaining why it had been the right decision to split the ownership of the race team from the main business.
“You have two fundamentally different [business objectives],” he continued. “The automotive division requires cash flow earnings per share, etc, and a racing team is much more around capital appreciation.”
Pandemic broke cash flow
Marsh further explained that till date the majority of expenses McLaren made were afforded by the sales of car McLaren made, but the ongoing pandemic lockdown closed shut its factories for a prolonged period directly hitting output and sales.
“We stopped making cars because our factory was locked down,” Walsh acknowledged. “If you don’t make cars, you don’t sell them. If you don’t sell them, you don’t get the cash flow.
“Yet equally we have our racing team which was continuing to spend money, as it should. That tension made everyone acutely aware that the fundamental model needed adjustments.
“I think we would have done this in any event, but there is no question that like many other companies the pandemic took any vulnerability and magnified it. Therefore we had a high degree of urgency to get this done.”
Due to this major capital injection, McLaren can now work on its upgradations ahead of its 2021 F1 season, the new wind tunnel development is their most immediate project, which will improve their chances against their rivals.
Rolling into life 🤩
— Formula 1 (@F1) August 22, 2019
“We could have just trimmed our sails,” said Walsh, who added that this would not have gone down well with the CEO of McLaren Racing Zak Brown.