The Precarious State of MV Agusta

03/23/2016 @ 2:02 pm, by Jensen Beeler39 COMMENTS


MV Agusta as a motorcycle company has always seemed to have feet of clay, especially when its financial future is concerned. Today is no different, as MV Agusta has announced its intentions to restructure its debt, in order to keep the company afloat.

Afloat is an interesting phrase, as the storied Italian brand has changed hands four times in the past 12 years, with two of those purchase prices being a token euro, as MV Agusta’s liabilities far outstripped the company’s assets and holdings.

Fast-forward in time and it would be easy to say that not much has changed, as MV Agusta now has €40 million in liabilities on its balance sheet, all non-essential staff have been furloughed, the production lines in Varese recently have been motionless.

While this seems like more of the same from MV Agusta, the situation is far more complex, and for once in its lifetime, it isn’t MV Agusta’s lack of sales that are to blame. In fact, it’s the opposite, as it is MV Agusta’s success in growing its motorcycles that is the cause of its current financial situation.

That might seem like a counterintuitive notion, but if you understand the relationships between chickens, eggs, and which came first, then you will understand the situation at hand here with MV Agusta.

And while this impasse isn’t a new one in the business world, it doesn’t change the fact that the future of MV Agusta is in a precarious state.

Of Chickens and Eggs

The central issue in MV Agusta’s current financial crisis is that the Italian motorcycle manufacturer cannot payoff its debt.

MV Agusta can’t payoff its debt, though, because it doesn’t have the cash to do so, and it can’t generate more cash without having access to more capital.

But, MV Agusta can’t raise more capital because it already owes too much money to its lenders, and the motorcycle company cannot take on another equity investor because that would dilute its partner AMG.

AMG’s position in MV Agusta, though, cannot be diluted because doing so would trigger its own set of issues, namely that MV Agusta would have to immediately pay off a large portion of its debt. Circle back to the top, if you don’t understand why that is an issue.

A Problem Long in Creation

To understand how MV Agusta got to this point, we first need to look much further back in the company’s past, when it was first divested from Harley-Davidson.

To its credit, the Bar & Shield brand did a great deal to get MV Agusta on two feet again.

Harley-Davidson wiped MV Agusta’s debt clear, it modernized MV Agusta’s facilities in Varese, and it footed the bill for MV Agusta’s R&D on the three-cylinder motorcycle lineup. Harley-Davidson also filled up MV Agusta’s coffers, to the tune of €20 million – a detail that often gets lost in the shuffle.

This €20 million figure was supposed to cover 12 months of operating budget for MV Agusta, and while it was a merciful move by Harley-Davidson, you can consider that figure only shade of what would be needed for its stated goal.

The very general rule of thumb here is that you need roughly €100 million to launch a motorcycle company in Europe.

Cash is King

Make no mistake, MV Agusta emerged from Harley-Davidson in a much better position than when it had been when it was acquired by the American behemoth, but the genesis of MV Agusta’s problem starts at this point in the company’s story, as the Italian brand was extremely undercapitalized for the job it had to do.

MV Agusta was undercapitalized, partly because of timing. This is because in 2010, access to institutional capital was virtually non-existent – both in the USA and in Europe – and that was for borrowers with a good credit history.

For a company like MV Agusta, which had been the poster child for financial instability, especially under Castiglioni control, the idea of getting a major lender to finance the company’s future was the kind of joke Wall St. types would tell each other on the way to their afternoon squash games.

Give credit to the Castiglioni’s ingenuity though, the Italian brand created a deal that saw AMG brought on, not only as a strategic partner, but also a minority investor in the motorcycle brand.

AMG bought a 25% stake in MV Agusta, which not only directly brought in a much needed cash infusion (rumors peg this figure at €30 million), but more importantly the German company brought the gravitas of the AMG brand, which helped ease the reluctance of financiers.

With AMG on-board, MV Agusta’s virtual credit score went up in the eyes of the banks; and as such, the door was opened for a €15 million loan from Banca Popolare di Milano (BPM).

Later, MV Agusta would take on another €25 million in debt to suppliers, bringing us to our €40 million figure.

You Have to Spend Money to Make Money

Even for those with an MBA, this is a complex money issue. After all, how does a company with stellar growth and budding sales have a money problem? It seems counter-intuitive. Let’s see if we can boil this problem down to its elements, in order to gain some understanding.

The first thing to understand is that there is a 12 to 18-month gap from when a company like MV Agusta spends money to make a motorcycle, to when a company like MV Agusta gets paid for the sale of that motorcycle.

Unless you are a well-funded or well-established company, this means you are buying parts and paying for labor with money borrowed, with the hope of paying those loans off, once you make your sale. For European motorcycle manufacturers, this usually means that you are buying the parts from suppliers on credit.

As with a credit card, once it reaches its maximum, you can no longer use it. And, if you max out enough credit cards, no lender will issue you another one – at least, not at any sort of reasonable interest rate.

That is what we have here with MV Agusta – the Italian motorcycle manufacturer maxed out its credit card with the banks, and it maxed out its credit card with suppliers. In order to use those lines of credit again, MV Agusta will need to pay down the amount of money that it owes.

Normally, when a company takes on debt, it factors in a payback schedule – in the same way that your credit card company has a “minimum payment” amount on each statement it sends you. The minimum payment is based on how much you owe the credit card company, so by definition it is based your past purchases.

If you are savvy, you will factor in future purchases as well, usually taking previous spending habits into account – i.e. if you know you are going to spend $500 next month on your credit card for groceries or whatever, you make sure you pay down your card enough this month, so you can make those purchases next month.

Where this becomes tricky though is when the rate of spending outstrips this payback amount – i.e. your groceries were $500 this month, but next month you have a house guest or something, and your spending goes up to $1,000 or more.

In the case of MV Agusta, the rapid sales growth meant that the money it was paying back to its lenders wasn’t enough to keep its credit lines free and clear, as it was spending at a higher rate than what it was earning, at window of time – remember there is that 12 to 18-month delay before the profit is realized.

This is called a cash flow problem. As far as business problems go, there are worse ones to have (especially if you are spending money to make money)…unless your name happens to be MV Agusta, of course.

The Poison Pill

Remember that €15 million loan from the Italian bank? Well it came with a catch.

One of the covenants to the deal with SACE and BPM was that AMG would have to remain as at least a 20% equity holder in MV Agusta, otherwise the bank could demand their money back. Immediately.

This covenant is a testament to how much these banks valued AMG’s involvement in MV Agusta, but it is also a critical factor in the predicament that MV Agusta currently faces, as it puts Giovanni Castiglioni between a rock and a hard place with his choices.

It also means, that the departure of AMG from MV Agusta would be a wrecking ball on the motorcycle company.

The Rock and the Hard Place

Cash flow problems are typically solved with some sort of bridge loan, where a lender “bridges” the gap between the money you need right now, to the money you are earning down the road.

A bridge loan is usually fairly straight forward, especially if you are a company that is seeing a hockey stick on its sales graph. Booming sales speak for themselves, after all.

However, if you are a company that is known for going bankrupt, having a revolving door of ownership, and racking up considerable amounts of debt on its financial statements, getting a bridge loan is a very tough proposition.

Back to the credit card analogy, you are asking another credit card company for a card, when you already have a bunch of maxed out cards in your wallet. It just doesn’t happen.

There is a second way to get money though, and that is through an equity partner. This would mean another company taking part-ownership of MV Agusta, in exchange for a cash infusion.

In the case of MV Agusta, with €40 million in liabilities, a roughly fair equity investor would want close to a 45% stake in the motorcycle company, in exchange for wiping the debt clean.

In a more likely reality, an equity partner would be looking to take control of the company, with over a 51% ownership play in that situation, to make the deal worth their while and to protect their investment.

At the most basic level for structuring such a deal of this size, this would mean that AMG’s position in MV Agusta would be diluted below that 20% threshold.

In fact, any meaningful amount of money invested into MV Agusta as equity (as opposed to debt), would likely take AMG below the 20% mark, which as we mentioned before, creates more problems for the brand, as it causes a financial avalanche on MV Agusta – the Italian motorcycle company just doesn’t have that kind of free cash available to it.

To top things all off, this would likely mean Giovanni Castiglioni would lose control of his motorcycle company.

Be sure to remember that the 35-year-old CEO literally grew up in the MV Agusta factory, and there are deep connections with the brand and Giovanni’s late father, Claudio.

For the Castiglioni family, this is as much about business as it is for them personal.

Show Me the Money

Rumors suggest that AMG is not keen on digging deeper into its Italian misadventure, nor is Castiglioni likely to give up the necessary control of MV Agusta to make that deal happen.

AMG selling its position in MV Agusta does nothing positive for the motorcycle brand, as it would still invoke the €15 million payment, not to mention put MV Agusta on even shaky ground, from a public perception perspective.

Additionally in such a scenario, it would be AMG that would be getting cash in that deal (arguably less than the €30 million it invested), not MV Agusta.

This is likely the reason why we have seen today’s announcement that MV Agusta hopes to restructure its debt with its lenders, even though no details of that plan have been put forth. The reality is, restructuring the debt is the only viable path for MV Agusta, given the interests of the parties involved, including AMG.

Working with its employee union, parts suppliers, and financial lenders, MV Agusta hopes to structure a new debt repayment plan that will allow the motorcycle company not only meet its production schedules, develop and plan for the long-term growth of the brand, but also to ensure a financially sound environment for itself and its creditors.

How that all will be achieved though, is anyone’s guess. One thing is clear though, something in the equation set out above will have to give. This is still a chicken and egg problem – which means one of that party’s positions will have to evolve from where it is now.

Photo: MV Agusta


    But Jensen. We just want to ride motorcycles!

  • CogitoErgoZoom

    we want cagiva back!

  • Excellent overview Jensen. With your interest in this I was hoping you’d weigh in on the discussion and make an attempt to unravel it all.

    I have to confess, whilst I was writing our brief update last night it was a struggle to find the wood for the trees.

  • michael uhlarik

    Mostly agree, but you are making some assumptions about MVs valuation based on the rumoured price of the AMG deal. Also, the vital component of the financial picture is missing : margin.

    MV is selling very pimped out motorcycles (oodles of specialty castings, complex and expensive composite tubular steel/CNC alloy frames, bespoke wheels, etc., with costs in Euros) at near Japanese mass-market prices. It is almost impossible to imagine that the profit margin on those motorcycles with those tiny volumes is very good.

  • The Blue Rider

    It’s too bad they didn’t have this problem a little earlier in the golden age of shady structured financing. Package that debt up for multiple investor groups, sell it as bond packages issued by offshore paper-only SPV companies with surety from a couple of yuuuuuuuge investment banks, and Roberto in Grand Cayman is your long-lost uncle. Of course, if one of those investment firms sinks mid-transaction you’re fcked, but when does that ever happen? Eh? EH? Cam aaaahhhhn, it’ll be fine…

    My admittedly simplistic blue-collar financial sense tells me they should be able to work a deal somehow if they throw enough lawyers and advisers at this problem, simply because they can point to a tangible good, selling in the real world, for real money, as an income source. A few years of bike sales and a solid line of real luxury goods should count for something, right?

    I bet they can work something out eventually, but there’s no guarantee it will be comprehensible without a couple of pages of flowcharts and an explanatory memo.

  • Clint Keener

    Maybe I should pull the trigger on that leftover ’13 F4, hmm.

  • paulus

    You reap what you sow… The angle here is to possibly force more cash from AMG? It would be embarrassing for them for MV to go down so soon after their intervention.


    Blue Rider, I think you have it Figured.

  • Marc Jorgensen

    Look at the big brain on Brad…..nice work!

  • Crankshaft

    MV simply have to do is cut-off their partnership with L. Hamilton. He probably gets paid what must be the annual profit of the company.

  • Ducati faced similar issues in the nineties. Had awesome bikes with the 916 and the Monster, but from what I read, couldn’t pay their vendors. They got bought by investors from the US and vioala. I am sure the current MV Agusta leadership is trying to find a similar deal… Like father, like son

    But I love their bikes

  • Tom

    ^^^ Watch for a move from the Chinese. No one likes pretty, shiny things with high end brand names more!

  • keithwwalker

    The Hamilton tie ins (ads) are embarassingly forced – Hamilton is probably barred from riding in his contract. AMG/MBZ has to decide what to do with MV – or maybe this is their plan to break Castiglioni.

  • Kawtipping

    You do realize that it was Cagiva (who currently owns MV Agusta) that owned Ducati at the time of not being able to pay their vendors don’t you?

  • Andrey

    Hamilton is not barred from riding in his contract. He was just in New Zealand and copped a bit of attention for taking selfies while riding down the freeway on his rented Harley!

  • Superlight

    Ducati went through just such a situation in the ’90s.

  • Alclab

    It looks like unless they can strike a miracle deal in restructuring their debt, Catiglioni has to face the fact that his company would no longer be under his control. In order for a significantly enough investment is to be struck, they are going to want a bigger share and control on the company (what you said about 51% sounds about right).

    I don’t know what AMG’s view is opn their move and investment on MV, but they might want to acquire control of MV and bring in all ther financial stability and access in order to not only pay their debts, but modernize and control the manufacturing process (germanize it if you will). Considering Audi did something similar with Ducati, it wouldn’t strike me as shocking, and would allow them to compete on the motorcycle market with Audi as well.

  • spamtasticus

    the devaluation of AMGs position at MV by an equity parter willing to “wipe the debt clean” is a non issue sience the bank calling in the note would immediately be paid by said infusion.

  • Muthalovin

    Castiglioni is in a tough spot, and I hope that they can work a deal out. It seems unlikely, though, that such a deal will get them to where they would like to be: kicking the can down the road.

    If that is the case, Giovanni Castiglioni needs to decide whether it is better to keep the company alive, but loose total control, or have MV shuttered.

  • Gary

    What MV is facing is not unique in business. It’s only made worse by the brutal nature of motorcycle industry. Makes you wonder why any firm would enter into this sector.
    Sad, to me MV is the last great broker of the Italian elan vital in motorcycling.

  • Hot_Lunch

    With all of the recent business/start-up catastrophes, I am getting the impression that the only way to be successful producing motorcycles is to already be successful producing motorcycles. EBR flopped. MV is drowning. Elio can’t get off the ground. Independent brands are consolidating. It seems the big guys have done a good job of pushing the little guys out.

  • Cheers!

    It’s a very complicated subject, that is for sure.

  • I’m not sure if that’s the problem, or the solution.

  • I’m basing the valuation of MV on its current sales. 0.9x multiple on manufacturing, maybe that number is larger because it’s high-growth. Then again, maybe that number is smaller because of past transgressions…

    Only MV knows the true COGS at play here. Their designs are very modular, so that has to count for something. I wonder how much would have been saved without a racing program though.

  • F3 800 is the way to go.

  • Now that is a tasty burger!

  • Hamilton rides. He just got in hot water for taking a selfie while riding a motorcycle. You can see him a couple times a year at the MotoGP races too.

  • The note being called really just sours the deal. They don’t really want to pay off the debt, they want to restructure it.

    Let’s say AMG is willing to take a bath on its position, just to get out of it, and ask 15 million for their shares. The reality is, you need to pay 30 million for them, because of the loan covenants. That deal just got sideways, in a hurry.

  • Richard

    I wanted to buy a Brutale at the end of last year as a second bike to uplliment my Ninja 650R but a certain dealer here in San Francisco treated me poorly and turned me off from buying it. So, instead I bought the 2016 zX-10r.


    On another note, I was really excited last year when I heard that they expanded their dealer network in the US by 25%. That’s YUGE! They added 9 dealers.

  • Superlight

    Their history demands some sort of racing program as a promotional platform, but I would have chosen the WSSP only, not WSBK.

  • Superlight

    I’m not so sure it was Audi who “helped” Ducati as much as Texas Pacific Group.

  • michael uhlarik

    0.9 x multiplier is very, very low. Auto is typically 10 – 11x, and Ducati was valued at 8x for the shirt-lived TPG IPO on the NYSE, and they too were racking up monumental debts with suppliers.

    But you are right, we don’t know COGS, we don’t know inventory levels, we don’t know Sellers Discretionary Earnings. Hell, we don’t know real sales figures because those press releases can refer to units shipped to distributors or sold to dealers.

    Anyway, it is SOOOO good to read intelligent business discourse about the motorcycle industry. Keep doing this, Jensen.

  • michael uhlarik

    Any new investor wants their money to go into the company, to develop new products, improve distribution and marketing, not to pay off old debts. A serious investor will have to do both, of course, like Investindustrial SPA did when they took Ducati off TPG’s hands, or as Jensen pointed out when Harley bought MV. Otherwise, they are just paying off the credit card of a sick, unmarketable company.

  • spamtasticus

    I understand and agree. My comment was torward investors along the vein of HD that want an unencumbered entity. I’m pretty sure that is their only option now unless this bank can be brought to heel.

  • Are we talking revenue or net income?

  • Adam Hammond

    10-11X would have to be based on net income. Historical Piaggio and HD trades are in the approx. 0.7X-2.5X range on forward sales.

  • Thank you Jensen for lucid explaination of the financial situation at MV Agusta. I sincerely hope that they’re able to plough their way through this situation whilst maintaining the family control.

    Alternatively, AMG could buy more stock and revamp the entire operations and infuse some much needed capital into the account books.

    Either way, it would be too disheartening and a travesty to lose MV Agusta. They truly create Motorcycles of Art.

  • Rick

    Our shop sells Triumph, Aprilia, Moto Guzzi, Kawasaki, Husqvarna and MV Agusta. Margins on MV are at least 3 points lower than any other brand.