Bull market – equity capital bankers drool over Lamborghini IPO case

Data Insight ECM Pulse 26 October

Bull market – equity capital bankers drool over Lamborghini IPO case

There is nothing like a quiet IPO market to get equity bankers blue-sky thinking about dream deals they can pursue. After the historic IPO of Porsche [ETR:P911] in September, advisers have turned their attention to the next luxury name in line – Italian supercar manufacturer Lamborghini.

Volkswagen (VW) [ETR:VOW3] also appears to be pondering that question, with CEO Christian Blume instructing other divisions to run mock IPO processes as a strategic exercise at the beginning of October, according to a report by German daily newspaper Handelsblatt.

“It is almost an informal invitation to pitch,” said one German ECM banker. “It is a really smart move because it has kicked off the process of internal brainstorming in loads of banks and got us all talking and thinking about it.”

Among all other brands in VW’s portfolio that could be listed, including motorcycle house Ducati, are car brands Audi, Bentley, Cupra, SEAT and Skoda.

But the name that bankers were happy to salivate over to the ECM Pulse, largely unprompted, was Lamborghini, arguably the crown jewel of VW’s non-listed portfolio.

Two bankers who worked on the Porsche IPO said there has been feverish talk since the listing about VW’s other portfolio assets, particularly Lamborghini.

“VW will be buoyed by what happened with Porsche,” one said, with both adding that the company, which had previously seemed closed off to disposing of assets through ECM deals, now seemed far more open to asset disposals via IPOs.

“You have to imagine a Lamborghini IPO is now under discussion,” the same banker added.

True Luxury

Two bankers said that Porsche was a more complete equity story than Lamborghini. Despite the attraction of the iconic 911, much of the IPO had been centred around the “whole sum of its parts” said one banker, including the growth of its more affordable cars and its potential in electric vehicles.

That said, Lamborghini has committed to producing its first electric vehicle in 2030, according to reports.

Lamborghini is far more like Italian peer Ferrari [NV:RACE] than it is Porsche. The company delivered 5,090 cars as of the six months ending in June 2022. Ferrari sold 6,706 in 1H, while Porsche delivered over 145,860 vehicles in the first six months. Like Ferrari, Lamborghini typically sells cars at a far higher margin than Porsche.

“Lamborghini is 100% an IPO candidate but a different sort of operation to Porsche,” said a fourth banker, citing Ferrari as a more obvious peer. “Lamborghini is a big proposition but is far more of a niche luxury name than Porsche.”

If a niche equity story like Ferrari is the goal, then VW will almost certainly be looking at a similar valuation multiple as a starting point. Ferrari traded at an EV/EBITDA multiple of 26.35x as of June 2022, according to Dealogic.

If Lamborghini were to trade at the same multiple, and to replicate its EUR 425m 1H22 operating profit in 2H, it could be valued at around USD 22bn at a listing.

One of the bankers said that Lamborghini might also prove slightly less appealing than Ferrari, which has huge motorsport pedigree through its Formula One team. But Lamborghini does have its Squadra Corse racing division, which competes in multiple series and is set for the top hyper-car ­category of the 24 Hours of Le Mans from 2024, according to reports, alongside Porsche and fellow new-entrant Ferrari.

Investor alpha

Porsche has generated investor returns of 15.88% and is the largest contributor to Europe’s 2022 IPO returns because of its size. Europe’s IPOs have had a positive year, returning around USD 2bn to investors so far, according to Dealogic data. Around USD 1.4bn, or 68%, of that alpha has come from Porsche alone, though.

Porsche’s large IPO return and the huge growth in Ferrari’s share price over the past few years show investors that there is serious alpha to be had in investing in super cars. There is little doubt that there would be strong interest in Lamborghini too.

Luxury automotive stocks are also expected to be resilient in the turbulent times ahead, with a Morgan Stanley [NYSE:MS] analyst note in September reportedly naming Ferrari as about the closest a stock in the bank’s coverage came to being “recession proof.”

Lamborghini also set new company half-year sales records in 1H22, according to its latest results, building on from a record breaking FY21.

“Lamborghini would get a lot of attention from investors,” said a fifth banker. “It is just a question of whether a Lamborghini IPO is number two or three on the VW agenda or the eleventh or twelfth item.”

All sources admitted that a deal was still speculative, and that any IPO was far down the road. A Lamborghini IPO may, in the end, prove as tangible as the prospect of ECM Pulse’s authors owning a Lamborghini, but it doesn’t hurt to dream.

VW declined to comment on this piece.

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