Endeavor Group, owner of Ultimate Fighting Championship (UFC), WWE and talent agencies IMG and William Morris, has announced that it will revive its plans for an IPO. Having previously tried and failed to list in 2019, Endeavor has filed for a new IPO of up to $100m, although this amount is just a placeholder, according to a report from Reuters.
Back in 2019, investors were deterred by Endeavor’s complex financials. So, will it be second time lucky for Endeavor, or do the problems linger?
Valuation of Endeavor's IPO
Should investors care about an Endeavor IPO?
At the centre of Endeavor’s pitch are plans to focus on its sports properties, including taking control of all UFC revenue and earnings. According to an investment prospectus seen by Variety, the company is looking to raise $1.7bn in private funding to purchase the 49.7% of UFC it doesn’t currently own from Silver Lake Partners and KKR & Co [KKR].
Endeavor will also be hoping for a return to live events, along with the paying punters, to drive up revenue that has taken a body blow during the pandemic.
“While we believe the long-term value of premium intellectual property, content, and experiences is enduring, the near-term impact to our business as a result of COVID-19 has been significant,” the company wrote in its filing with the Securities and Exchange Commission (SEC).
In the second quarter of 2020, Endeavor’s revenue came in at $462.9m, down from the $1.2bn seen in the previous quarter. For the full year, revenue came in at $3.5bn, on a $625.3m net loss. That’s a substantial drop from the $4.6bn in revenues and $530.7m loss seen the previous year.
“[Endeavor’s IPO] will be pitched as a ‘post-pandemic’ growth story about consumers eager to once again go to live events,” Matthew Kennedy told MarketWatch. “That’s not to say they won’t also emphasize their digital presence, which is always top-of-mind for investors evaluating growth [and] margins,” said Kennedy.
“[Endeavor’s IPO] will be pitched as a ‘post-pandemic’ growth story about consumers eager to once again go to live events. That’s not to say they won’t also emphasize their digital presence, which is always top-of-mind for investors evaluating growth [and] margins” - Matthew Kennedy
The emphasis Kennedy talks about was made clear in the investment prospectus, with MarketWatch noting the word “streaming” was used 62 times, up from 42 mentions in the 2019 prospectus. That’s no surprise given digital streaming service UFC Fight Pass was one of Endeavor’s strongest performers last year, with subscriptions growing 40%.
What should investors keep in mind?
Endeavor is highly leveraged, with a growing debt pile. At the end of 2020, Endeavor’s debt stood at $5.9bn, up from $4.5bn the previous year.
Stringent cost cutting measures have been taken in light of the pandemic, including laying off staff. These resulted in a one-off $32m severance and restructuring write off, along with $13.7m in COVID-19 costs. Endeavor’s CEO Ari Emanuel and chairman Patrick Whitesell also gave up their $4m salaries, although they both took home multi-million dollar bonuses.
Valuation of Endeavor's COVID-19 costs
One other potential point for investors to consider is that Endeavor plans to list with five different classes of stock, with the Class Y stock owned by Emanuel, Whitesell and private equity backers coming with 20 votes per share. That will give them control of more than 50% of voting rights and the final word on things like the election of board members or mergers.
In MarketWatch’s rundown of what investors should watch out for, the publication noted Endeavor’s complex accounting system and a “highly acquisitive strategy” that has led it to pay more than fair market value for acquisitions.
Given the financials, it seems an off time for Endeavor’s second attempt to go public. A lot will hinge on whether a significant volume of people can be persuaded to go to a live UFC or WWE match in the near future. Investors could decide to watch how this one plays out before jumping in the ring.
Endeavor is looking to list on the New York Stock Exchange in the second half of the year, under the ticker EDR.