McLaren sells the farm

Twenty years ago, Mizens Farm, just outside Woking in Surrey, was an 84-acre arable farm, which had a lot of greenhouses and a minaiture railway and associated infrastructure. McLaren was looking to buy land for a new headquarters and having given up on the idea of moving to Lydden Hill in Kent, after establishing that its employees were not interested in moving, the team did a deal to buy Mizens Farm. As part of that deal McLaren agreed to relocate the railway. Once all that was done and the planning processes completed, the team built its iconic McLaren Technology Centre, designed by Norman Foster. It was an F1 factory like no other – and it still is. Since then the company has grown and established itself as a global supercar company, which was not reliant on F1 for its survival. In fact, today, the team provides only 12 percent of the company’s revenues.

McLaren is doing well in Formula 1 this season but the company as a whole has been facing a lot of challenges since the start of the global pandemic a year ago. This is reflected in the sales of the McLaren supercars. The company sold 4,806 cars in 2018, 4,662 in 2019 and it expects to announce around 2,700 sales in 2020, when the full-year results come out in June. This means that revenues have dropped significantly and that means that the company, which has considerable debts (in the region of $700 million) has been facing a liquidity crunch. There was a cash injection last year of $370 million from the shareholders but more was required and this is why it was decided that 33 percent of the shares in McLaren Racing would be sold to a US consortium, in a deal that runs until the end of 2022. This will raise $240 million when completed. The buyers are MSP Sports Capital, run by investor Jeff Moorad and including Jahm Najafi, who became the vice-chairman of the team as a result.

But it seems that this was still not enough and with other sources of financing become less available and more expensive, a sale and leaseback of the McLaren headquarters became the most sensible thing to do.  The deal includes three buildings: the original McLaren Technology Centre, the McLaren Production Centre and the underground McLaren Thought Leadership Centre. A sale and lease back converts a company’s property assets into capital, without the company losing control of the building.  It avoids additional debt costs and rental payments are tax-deductible. It also removes debts secured on the property from the balance sheet and so improves the company’s debt-to-equity ratio, which makes it easier to borrow. The deal is worth about $240 million  for McLaren with a real estate investment company from New York called Global Net Lease agreeing to a 20-year triple-net lease, which means that the tenant agrees to pay all the expenses. The deal will also, no doubt, include a buy-back clause that will enable McLaren to take control again at some point, or perhaps to extend the lease for a further period of time.

Sale and lease back is something that has been used by a number of big British companies in recent times with firms like BP, Waitrose, Sainsbury’s and Next all improving their balance sheets by selling their real estate but leasing it back. The deal also means that if McLaren has expanded significantly in 20 years from now, it could move to new premises better-suited for its needs in the future.

For an investment firm, such a deal means that there is a  guaranteed income stream which means that it is easier to find investors who are happy to get involved.

25 thoughts on “McLaren sells the farm

  1. Swapping cash now for annual lease payments – while still paying all the upkeep and maintenance – is usually a desperate last resort, as it will be expensive money. McLaren only have varieties of one ageing road car and it cannot be selling well. Outlook remains poor, this doesn’t buy much time.

    1. US Youtuber Vtuned has been rebuilding a 720s. It was a complete strip down and a tub change. He has not seemed very inpressed with the quality especially of the complicated doors which are glass fibre not carbon fibre. McLaren may need to improve their product given the prices they charge!

  2. Say, Joe, do you think Ron Dennis was given enough credit for what was achieved on his watch?
    Is he still a civil servant?

      1. He is CBE, and received that 20 odd years ago. He certainly does deserve a knighthood, just like John Surtees deserved one.

        When you see all the mandarins who get honours and they achieve next to nothing it makes you wonder.

    1. I have always wondered if Ron was offered a Knighthood or something but turned it down. Maybe he felt it recognised just one person rather than a team. Or the mark of a great man confident in his abilities and achievements as a lasting legacy in the history books. Would love to have an off the record chat with him.

      1. I’m not at all surprised Ron’s biography is still under wraps.
        Too many people are still alive.
        In fact I think it’ll probably be posthumous.

        Definitely 100% deserves a knighthood though, compared to some of the numpties who’ve gone ahead of him in the queue. I have to wonder if he declined one.

  3. I’m surprised by this since I understood that McLaren had already raised loans with the property as security. As for Lydden Hill, the story locally is that Dover council refused to lift the extremely strict noise restrictions covering the track, making it useless for testing.

  4. Poor Ron must be turning….., however, even he would have had problems dealing with the bug. Car manufacturing has always had a very chequered history and you have, therefore, to admire Enzo Ferrari’s empire’s longevity.
    I so hope that with the winding down of the bug’s worst effects, good management, some inspired design and a healthy portion of good fortune they will be able to prosper.

  5. McLaren is a great brand and I really wish them success. Hopefully this will turn out to be a smart move for the future.

  6. Strange Ron get forced out and now the have sell their building and are having money problems. I’m not sure they will make it in the future. Sad a great Brand being driven into the ground.

  7. Didn’t they also secure a loan against their car collection? Next they will be selling off the remaining F1 road cars if they haven’t already. Sounds like they’re losing money like no tomorrow.

  8. Hi Joe, not related but having watched the race at St Pete’s yesterday, do you think there could be a transition for Colton Herta, or would F1 not be interested?

      1. It’s a pity Tin Can Racing Italia did not proceed with running Pato o’Ward when it was mooted. He’s a similar age and he and Colton Berta are quite well matched.

        Other than Scott Dixon who is world class, I think Josef Newgarden is the next most consistent talent in the series. Berta is still learning and he’s not like Hamilton, Better, Verstappen who came into F1 and immediately made a sustained impression. Herta (and o’Ward) have done some excellent races, but also looked ordinary for large parts. It may be the nature of Indycar.

        But do any of them even want the hassle. Only guy who would is Alexander Rossi.

  9. Does not look great, and this for a team in a positive trend.
    F1 is on the decline since years, but it is hard times in almost any business these days.

    PS. When the races finally become entertaining, they decide to twist the weekend format once again. New rules next year…. We never learn.

  10. McLaren seem to be taking on the sort of loans, charges and asset sales that Williams had before Dorrilton Capital paid them off and increased the shareholders equity in cash.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s