The choppy waters McLaren has navigated behind the scenes of its F1 success

Mumtalakat, the sovereign wealth fund of Bahrain, has owned the McLaren Group since March of this year, completing its takeover of a business which has suffered more than its fair share of difficulties.

A look back through the past five years tells a turbulent tale, albeit one through which Mumtalakat, under CEO Shaikh Abdulla bin Khalifa Al Khalifa, emerges as the kind of shareholder many businesses would envy. In short, the Group has weathered the storms created by events such as the global pandemic, semiconductor shortages and delays in its automotive business, thanks to shareholders with deep pockets and a steely belief in its future.

Meanwhile, the ebb and flow of McLaren’s fortunes in F1 are well known. The decline began during the final years of the Ron Dennis era, with a catastrophic drop in performance during the ill-fated Honda partnership of 2015-17, an exodus of sponsors and a series of unseemly boardroom battles. 

The recovery was Renault powered in 2018-19, before a further on-track resurgence was aided by a renewed partnership with Mercedes and strong leadership under Zak Brown and current team principal Andrea Stella.

In 2022 McLaren Racing, which includes the IndyCar, Formula E and Extreme E teams, produced an operating loss of £9m but, while interest payments and similar expenses took overall loss to just under £58m, that was set against turnover surging by 55% to £328m. This was thanks in no small part to the revived performance of the F1 team, its success in attracting sponsors and the inclusion of IndyCar revenues for the first time. In short, McLaren Racing has been heading in the right direction.

The Group business has been plagued by the complexities inherent in running a high-performance automotive manufacturing business combined with
a series of major blows. Some self-inflicted, others
far beyond its control.

To cut to the chase, you need only look at the impact of Covid-19 during the first quarter of 2020. While F1 fans in Melbourne were wringing their hands at the cancellation of the Australian Grand Prix on Friday 13 March, there were somewhat deeper
shocks running through the corridors of McLaren’s Surrey headquarters.

Although the F1 team kept going, behind the scenes McLaren was in a difficult financial position in 2020

Photo by: Zak Mauger / Motorsport Images

In 2019 McLaren reported a wholesale volume of 4,662 cars, slightly down from 4,829 in 2018. In 2020 that number fell by 64% to 1659. Desperate times call for desperate measures, and McLaren’s board set about appointing a proven captain of industry to steer the business through the choppy waters ahead.

Out of cash

Paul Walsh, the highly experienced former CEO of the Diageo drinks company, joined McLaren as executive chairman on 18 March, 2020, just five days after Melbourne’s cancellation. Together with McLaren Automotive CEO Mike Flewitt, Walsh acted swiftly, suspending road car production on 24 March, furloughing staff a fortnight later and following that with a radical restructuring of the business marked by 1200 redundancies across the 4000-strong Group.

To shore up the company’s finances, US banking giant JP Morgan was asked to raise £250m through bonds secured on assets including McLaren’s heritage collection and headquarters. Existing bondholders initially resisted that move, leading to a court case in June 2020 during which the Financial Times reported that, without fresh funding, McLaren would run out of cash on 17 July. Things were bleak.

The emergency measures of the summer were to be followed by the recapitalisation of the entire business with a view to stabilising McLaren in the long term

Fortunately a solution was found in the form of a loan totalling £150m from the National Bank of Bahrain, a vital lifeline only made possible by Mumtalakat, conveniently also a shareholder in the bank. This crisis funding followed a £300m capital injection by McLaren’s shareholders in the run up to the pandemic.

Mumtalakat had initially acquired a 30% stake in McLaren from Ron Dennis and long-time partner Mansour Ojjeh back in 2007. The Bahraini sovereign wealth fund had only been established the previous year, founded by HM Hamad bin Isa Al Khalifa, King of Bahrain. Its interest in McLaren came about following Bahrain’s addition to the Formula 1 calendar in 2004.

The Bahrainis’ stake increased when Dennis cashed in his remaining 25% holding in McLaren in 2017, a transaction which cost £275m and left Mumtalakat with a majority shareholding of 57.7%. A further near-25% was held at that time by Ojjeh’s TAG Group and Michael Latifi, father of former Williams driver Nicholas Latifi.

When the pandemic hit, everything changed.

Mumtalakat, headed by Shaikh Abdulla bin Khalifa Al Khalifa, now holds full control at McLaren

Photo by: Mumtalakat

By September 2020 the company announced that a refinancing strategy would include the restructuring of debt and the raising of fresh equity. In summary, the emergency measures of the summer were to be followed by the recapitalisation of the entire business with a view to stabilising McLaren in the long term.

That strategy included the sale and leaseback of McLaren’s headquarters, including the Thought Leadership Centre, McLaren Production Centre and the Sir Norman Foster-designed McLaren Technology Centre opened back in 2004. That deal took eight months to complete, Global Net Lease unlocking
£170m in funds as the pandemic rolled on into 2021.

Also sold was a minority shareholding in McLaren Racing; American private equity company MSP Sports Capital acquired a third of the business in two tranches. This netted £185m, giving the racing business a £560m valuation, a strong result coming only four months after Williams was sold for a reported £136.6m.

The new strategy

July 2021 saw a new round of equity funding in the form of £400m from Saudi Arabia’s Public Investment Fund and global investment company Ares Management, plus another £150m from Mumtalakat. McLaren also announced a £500m corporate bond due in 2026. 

As if the pace of change were not enough, the following month the Group offloaded one of its three divisions. The McLaren Applied Technologies business, created from the merger of McLaren Composites
and TAG Electronics in the early 2000s, was sold to Greybull Capital Management. 

The sale of Applied underlined the extent to which the new strategy was to focus on the core Automotive business, while the Formula 1 team and racing activities are run as a joint venture with MSP Sports Capital. The new Board comprised key figures from Mumtalakat, Ares and PIF, but change at the top of Automotive was afoot as Mike Flewitt departed as CEO.

Initially replaced on a temporary basis by board member Michael Macht, formerly a senior executive at Volkswagen and Porsche, Flewitt’s role was filled on a permanent basis six months later by Michael Leiter. He brought with him strong credentials from Ferrari, where he was chief technology officer, and Porsche.

McLaren's Artura model was delayed by multiple factors which hurt the automotive part of the business

Photo by: McLaren

Under Leiter’s leadership Automotive has set about tackling delays to the hybrid Artura model, hit by a combination of factors including semiconductor shortages, quality issues and even a fuel system-related recall notice issued by America’s National Highway Traffic Safety Administration last December. 

Additional shareholder funding of almost £600m has been called upon since mid-2022, including in the form of convertible preference shares. Mumtalakat has
duly converted these into ordinary shares, a process triggered by an agreed deadline or an ‘event’ such
as a further funding requirement.

By last December Paul Walsh announced that a full recapitalisation of the McLaren Group had been agreed, the transaction process leading to the March announcement that Mumtalakat holds full control.

Under Mumtalakat’s ownership the next challenge is to fund and develop new models as the company seeks to launch an all-electric supercar by 2030

Mid-2024, McLaren looks very different from five years ago. Whereas car production had soared towards 5000 units in 2018/19, in 2022 wholesale volumes were 2188; last year that figure was 1569 by the end of September, reflective of those semiconductor shortages and what the company described as “an enhanced focus on quality”. Financial losses have continued, a pre-tax loss of £274.9m in 2022 for McLaren Holdings and its subsidiaries, comprising the McLaren Group, followed by a loss of £276.3m for the first nine months of 2023.

While the Formula 1 business has surged, the Automotive business continues to battle, streamlining its product portfolio, rebuilding confidence among dealers and customers.

Under Mumtalakat’s ownership the next challenge is to fund and develop new models as the company seeks to launch an all-electric supercar by 2030. While discussions with automotive groups including Audi and BMW have been reported, industry observers believe a technology agreement, joint venture or partial sale to a US or Chinese partner seems more likely. 

Talk of an IPO would seem premature – there is too much work to do in driving the automotive business towards sustained growth and profitability. Mumtalakat will be aiming to combine the power of McLaren’s
brand with new-era hybrid and electric powertrains
to drive its continued recovery.

On both the racing and automotive sides, McLaren continues its rebuild at pace

Photo by: McLaren