MV Agusta is Getting Ready for a Future IPO?

06/25/2013 @ 3:39 pm, by Jensen Beeler10 COMMENTS

MV Agusta is Getting Ready for a Future IPO? The Caterpiller Alice in Wonderland 635x691

Right on heels of the news that Massimo Bordi has left MV Agusta, we get news from the Italian marque that Giorgio Girelli has been appointed the new Executive Vice President of MV Agusta Motor SpA. According to the company’s press release, Girelli’s appointment to the MV Agusta’s Board of Directors is part of three-year goal to take the motorcycle manufacturer’s stock to the public market. In case you weren’t sure, this is what a horrible idea looks like.

“Giorgio Girelli’s addition to the Board of Directors of MV Agusta is the beginning of a process aimed at further growth, particularly in high-potential international markets. Girelli brings unique and valuable expertise to the Company combined with a sincere passion for motorcycles and the MV brand. Over the next 3 years we can aim for the doubling of sales, with a solid capital structure, and we are convinced that the outcome will be the listing of the Company on the Stock Exchange” says Giovanni Castiglioni in the company’s press release.

The press release then goes on to coyly state MV Agusta’s “strong growth” in 2012 by quoting an 86.% boost in sales and 49.5% increase in revenue, though MV Agusta fails to peg those numbers in any sort of concrete figures. Our sources say that the company from Varese is still operating at a heavy loss, and it is a curious note that with all the growth that is occurring on the balance sheet, MV Agusta fails to mention a similar increase in the company’s net income.

A large part of that operating loss stems from the fact that MV Agusta is still a sub-10,000 unit company — a problem that the Castiglioni’s hoped to fix with its smaller-displacement triples, namely the MV Agusta F3 675. To be fair, MV Agusta has made strides in that regard, and has posted double-digit unit sales growth thus far in 2013. However, one also has to remember the plethora of new models that have come from the iconic Italian brand in the past product cycle, and wonder how sustainable that growth is for MV Agusta.

It seems like just yesterday I was wondering about the direction Giovanni Castiglioni would take his company, as MV Agusta was transitioning from the path that Harley-Davidson blazed for the brand onto the path that Castiglioni would forge. Whiffing hints at a future public stock offering, while casually dropping the most spurious of financial claims, is an interesting first move.

From an investment perspective, much could be done with MV Agusta, which is no doubt the reason the Castiglioni’s bought the brand back from Harley-Davidson (knowing some clever loopholes in Italian bankruptcy and business law does hurt either). A few years ago, MV Agusta was an intriguing company for investment bankers, venture capitalists, and private equity firms, and it remains so to this day.

The potential for another great Italian motorcycle brand rebirth is there; but remember, even Ducati Motor Holdings struggled to turn a profit these past years, and once Audi finds where all the bodies are buried in its new motorcycle company’s accounting ledgers, I am sure zie Germans will wonder about the wisdom of their $1.1 billion purchase.

A person much wiser than me once explained that companies like Ducati and MV Agusta have to exist as private corporations, ideally within the confines of another, more secure and profitable corporation, in order to truly be stable and survive the cycles of consumer spending.

I don’t think that logic has changed in the years since, and while MV Agusta can run a good PR campaign on its revival from the ashes of Harley-Davidson ownership, the investors who would presumably be buying the company’s shares on the open market…well, they’ll be looking at the balance sheets not the product brochures.

The announcement, if you can call it that, since it should be treated more like a stated aspiration than anything else at this point in time, reminds me a great deal of a similar statement made by Tesla Motors a number of years back. A company yet to turn a profit, in a sector with low, very low, revenue multiples (the napkin math investors use to value companies), Tesla had a clear road map to go public, and did so with considerable success.

Where Tesla suceeded, and where MV Agusta will fall, is the market opportunity — there is growth in electric vehicles. There is technology being developed that can be sold or licensed. There is an entire industry of entrenched companies that could be displaced — the opportunities go on.

For MV Agusta, its biggest asipiration right now would be to have the volume and brand power of its Italian sibling, Ducati. This is of course a false goal line, as Ducati has eyes to have the international sales of a brand like BMW. BMW Motorrad, the name of the game is to build more than a quarter-million units a year, which likely means following KTM to India and other developing markets with its new partner TVS.

Imagine now you are a stock broker or financial advisor, and you want to advise your client on buying stock in MV Agusta. A company with its sorted financial history not that far in the past, with no positive income on its books, and with a venerable smoke and mirrors show of financial stability/growth. How would you invest?

Source: MV Agusta

Comment:

  1. philly Phil says:

    very good points. well written. I can’t see MV being a very good investment. However, I imagine, he has some trick up his sleeve. I don’t think ducati was such a bad investment however. unlike MV, Ducati is a household name. now that doesn’t matter much when it comes to numbers, but I think ducati would have been just fine w/o Audi. The two of them can only benefit from each other.
    MV is turning a new page with their new models, and I would more so think or hope, that they need the investors to expand their dealership base and model line offering…

    otherwise, it’s not gonna work out

  2. irksome says:

    Actually, in Alice In Wonderland, the caterpillar and the Chesire Cat are the only ones who know what’s going on.

  3. CTK says:

    Good piece. Yea I am not sure MV is ready for prime time. It will take a few years. I am sure they would love the cash flow now though.

    MV is unlike Ducati in that they don’t have the adventure bike leverage to take advantage of. Their whole lineup is in a segment in sharp decline. I would really hate for them to dilute the brand with poorly fuelled 250-300cc bikes too. They are kind of stuck

  4. paulus says:

    IPO…. Instant profit opportunity (for some select few)
    Outside investors just there to stuff the coffers of the fat cats.
    Turn their debt ridden holdings into something of worth.
    After a year or two.. parachute out on investor cash.

    No thanks

  5. kww says:

    Unlike the Agnelli empire, in which the Italian government has until recently, had their back financially; the Italian motorcycle industry have another tact: beguiling investors and corporations into large investments which never pay off. They go bankrupt, or close to it, and start over again, a phoenix from the ashes (or the Resurrection, this is Italy after all).

    You must realize there is two sides to the Italian motorcycle industry coin. The first is the brilliant engineers and engineering, from which the greatness occurs. The second is the financial wizards who play their money game. It is a curious arrangement, the client and artist. All others are outsiders.

    It will be interesting to see how Audi does with Ducati in the long run. I don’t think Audi has been too successful with Bentley or Bugatti, and only moderately successful with Lamborghini. Therefore I don’t think a ‘foreign’ corporate investor would work for MV.

    Possibly the best outcome could be if Piaggio, or KTM acquire the company and the MV becomes a supersport lineup within a larger brand.

  6. smiler says:

    An investment company would be better suited to sort a company like MV out than a share issue. Look at Ducati before Texass Pacific took it over. When the 916SP came out you could not tell what it was because they really just stuck on anything that happened to have in stock. Foggy and the Monster saved the company but it is in a much better place now than it was ten years ago. And TP made a decent return as well.
    The trickle down that was used from the R version Superbikes right through the range to the Monster was a very sensible way of reducing the size of its parts bin and being able to purchase in bulk to reduce costs. That is something MV must do. And thus far they have not made a basic version of the F4. On the market since 1997 but still no 9K version.

    The Italians get stuck on making ever more exotic and expensive bikes then go bust. MV needs to make (and is) some simple bikes that it can sell in volume. Then they can have the exotica as well.

  7. alexssss says:

    fiat

  8. sigsegv says:

    @ctk
    MV will reveal both an Hyperstrada-like version of the Rivale and a Multistrada alternative this fall.

    @kww
    Indeed, Aprilia is doing rather well under Piaggio.

  9. Marc says:

    They’re a great candidate for a PE buyout. Short on cash, likely terrible balance sheet (though much improved from pre-Harley), great brand and product pipeline. With cash and management rigor, the two things a good PE has, they could be a fantastic turnaround story (and investment multiple). I wonder if this talk of IPO is just a way of indirectly marketing themselves for a private purchase – “look we’ll give you a great exit in 3 years, just buy us now and turn us around.”

  10. Norm G. says:

    echoing what some have already said, here is their “3-legged stool” for success. in no particular order…

    dealers, race effort of the 675, and adventure kit.

    do not pass go.