Investindustrial Cuts Stake in Aston Martin by 5%

Investindustrial has reduced its shareholding in luxury sports car maker Aston Martin Lagonda by selling a 5% stake worth £149 million ($185 million). The sale comes as Aston Martin struggles with high debt levels and lower-than-expected sales. The move provides Investindustrial with liquidity while still retaining a sizable position to benefit from any potential rebound. This article explores the details behind Investindustrial’s stake sale, the challenges facing Aston Martin, and the outlook for shareholders.

Overview of Investindustrial’s Sale

• Investindustrial has been an Aston Martin shareholder since late 2020.
• It recently sold 36.4 million shares representing a 5% ownership stake.
• The shares were sold at an offer price of £4.10 per share.
• Total proceeds from the sale amounted to £149 million ($185 million).
• After the sale, Investindustrial still retains a stake of just over 16% in Aston Martin.
• The sale provides Investindustrial liquidity and recognizes some value after recent share price declines.

Background on Aston Martin

• Aston Martin is an iconic British luxury sports car company founded in 1913.
• The company has an illustrious racing heritage and has featured in James Bond films.
• Aston Martin held its IPO in 2018 at £19 per share, giving it a £4.3 billion valuation.
• The company has struggled in recent years, reporting heavy losses and going through several re-financings.
• Luxury automakers have faced supply chain challenges, inflation pressures, and waning demand.
• High fixed costs also weigh on Aston Martin’s profitability at lower production volumes.

Challenges Facing Aston Martin

Several factors have driven Aston Martin’s recent underperformance:

High Debt Levels

• The company holds over £1.2 billion in debt stemming from its 2018 IPO and later refinancings.
• High interest costs consume cash flow needed for R&D and operations.

Lower Sales Volume

• Aston Martin’s sales dropped from over 6,000 vehicles in 2019 to just 3,000 in 2021 as demand softened.
• Lower production volume makes it harder to cover high fixed production costs.

Profitability Pressures

• EBITDA margins are negative as weaker sales and inflation have created losses.
• Further equity raises have diluted shareholders.

Executive Turnover

• Leadership changes with four different CEOs since the IPO created instability and strategic uncertainty.

Supply Chain Disruptions

• Like all automakers, Aston Martin has faced semiconductor shortages and supply chain bottlenecks affecting production.

Geopolitical Headwinds

• Wealthy buyers in Russia and China have slowed purchases given respective sanctions and Covid lockdowns.

Investindustrial’s Involvement

Investindustrial first became involved with Aston Martin in late 2020 by providing a £182 million investment through a 16.7% ownership stake. Its moves to support Aston Martin include:

• Leading a consortium that invested £500 million into the struggling company in early 2020.
• Helping de-risk Aston Martin’s balance sheet through the 2020 recapitalization.
• Gaining a board seat to provide governance and strategic input.
• Injecting new capital to fund model launches like the brand’s first SUV, the DBX.
• Facilitating incumbent shareholder buyouts to consolidate ownership.

Rationale Behind the Stake Sale

Investindustrial’s motivations for reducing its ownership position likely include:

• Monetizing part of its stake through the £149 million share sale after recent stock declines.
• Reducing its concentrated exposure to a struggling company facing an uncertain outlook.
• Maintaining liquidity in its portfolio versus remaining locked into a single investment.
• Cashing out its stake partially while still keeping skin in the game.
• Selling amid some recent stabilization in Aston Martin’s debt profile and liquidity.

Ongoing Shareholder Strategies

Even after selling down part of its position, Investindustrial may continue to pursue options like:

• Providing additional capital injections if conditions worsen requiring more funding.
• Using its remaining board seat to steer strategy in a positive direction.
• Allowing its 16% position to benefit from any share price improvements going forward.
• Buying more shares at depressed prices if the sale develops into a larger divestment.
• Facilitating negotiations with creditors to improve Aston Martin’s debt profile.
• Helping identify a new CEO or strategic partner that can return Aston Martin to profitability.

Outlook for Aston Martin

Aston Martin faces ongoing uncertainties, including:

• Demand headwinds persisting amid high inflation and recession fears affecting luxury goods spending.
• Rising costs and supply chain issues continuing to constrain production margins.
• Ongoing volatility and execution risks accompanying any potential turnaround.
• The need for better inventory management to avoid cash flow strains.
• Difficulty stabilizing losses and cash burn without better operating leverage.

Importance for Investindustrial

The stake sale holds implications for Investindustrial as an investment firm including:

• Realizing partial liquidity after a period of ownership in a troubled firm.
• Cashing out a portion of its position limits ongoing risk exposure.
• Keeping powder dry for other investment prospects in the future.
• Signaling disciplined portfolio management and its wisdom in taking some chips off the table.
• Maintaining a stake shows ongoing belief in Aston Martin’s potential and brand value.
• Preserving access to participate in any upside if an operational turnaround gains traction.

The Bottom Line

Investindustrial’s move to sell 5% of its ownership share in Aston Martin provides pragmatic balance. It generates liquidity amid the company’s current struggles while retaining significant exposure as the largest outside shareholder. The sale likely reflects prudent portfolio management given uncertainties facing Aston Martin as it works to correct course.