Target: Petty Enterprises
Sponsor: Boston Ventures
Seller: Petty Enterprises
Petty Enterprises, the iconic stock-car company mired in a decade-long winless streak, joined the ranks of NASCAR teams that have grabbed a financial lifeline to compete with the personal fortunes of owners like Roger Penske and Rick Hendrick.
Mid-market buyout shop
The new management team must also secure sponsorship for the company’s flagship No. 43 car, driven by the veteran Bobby Labonte; General Mills, last season’s sponsor, is leaving to support a fourth car at rival Richard Childress Racing. The company’s other car, driven by Richard Petty’s son, Kyle, has only partial sponsorship. But the acquisition persuaded Labonte to sign a new four-year contract with Petty Enterprises earlier this month. He had debated leaving the team.
It took Boston Ventures about two and a half months to complete the deal after securing exclusivity from the seller. With its majority-stake control, the firm will select four of the seven members of the company’s board of directors; the Petty company will choose the other three. Both Boston Ventures and Petty Enterprises submitted CEO candidates and in collaboration selected David Zucker, who most recently ran Chicago-based video game producer Midway Games. Boston Ventures Managing Director Barry Baker is the new chairman. Richard Petty, who earned the nickname “The King” and holds the career mark for NASCAR races won, will serve as chairman emeritus. Boston Ventures is known for maintaining friendly ties with bought-out family-owned enterprises.
Neither side would disclose financial terms beyond confirming that Boston Ventures had acquired a controlling stake. But Andrew Davis, a managing director at the firm, said that the deal’s initial investment was financed entirely through equity from Boston Venture’s seventh fund, a $435 million pool closed in 2006. The only debt for now is a revolving credit facility from Wachovia intended for working capital.
To spur growth, Boston Ventures aims to invest in technology upgrades and add a third racing team in the next several years. “The race team economics are very similar to most businesses,” Davis said. “There [are] really economies of scale here.”
Petty Enterprises faces a long road back to the checkered flag. Its last victory came in 1999, and Richard Petty won for the last time in 1984. A recent trend of team consolidation has increased the gap between the richest and poorest NASCAR entities, contributing to an estimated 9 percent decline in Petty Enterprises’s overall value last year, according to Forbes. NASCAR’s eight-year, $4.48 billion television deal began in 2007 but will not immediately change the sport’s financial landscape; until 2012, the deal won’t pay teams any more than what they got two years ago. NASCAR is the second-largest regular-season sport on television and holds 17 of the nation’s 20 best-attended sporting events.
Petty Enterprises generated $21.5 million in sales in each of 2005 and 2006, according to Thomson Reuters, publisher of Buyouts. Capital IQ estimates the average yearly revenue of the Richard Petty Driving Experience at $13.4 million annually, although Davis said that it too has opportunities for growth. For example, the firm intends to beef up a fledgling safe-driving program for teens that Petty launched in March 2007 in partnership with Clemson University researchers.
The buyout is the latest in a wave of outside investment in NASCAR teams. Roush Racing sold an ownership stake to the Fenway Sports Group in early 2007, although that team’s management remained in place. Canadian sports owner George Gillett became a majority owner of Evernham Motorsports late last year, and an executive at
“When we first met in Miami he said to me, “’Look, I know racing but I don’t know business,’” Davis said of Richard Petty. “He said, ‘NASCAR has become now more of a business-type thing, and I need some help there.’ … He’s very smart and very shrewd, but his passion is racing.”