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Volume 26 No. 179
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Endeavor's Shelved IPO Plans Force Company To Rethink Strategy

Endeavor cancelling its planned IPO is being seen as a "setback" for the company and CEO Ari Emanuel, as analysts expected Endeavor to "pay down its substantial debt load with the proceeds," according to Faughnder & Perman of the L.A. TIMES. Endeavor carries long-term debt totaling $4.6B with total liabilities of $7.2B and cash on hand of $830.9M, according to recent filings. The company had planned to launch its IPO Friday on the NYSE, but it "appeared to rethink its plans amid concerns that investors were cool on the stock and given the weakening of the broader IPO market" (L.A. TIMES, 9/27). In L.A., Alex Ben Block wrote the IPO "was attractive, until Wall Street insiders heard what Endeavor was actually selling -- and how much debt it carried -- at events held for investors." Media analyst Harold Vogel indicated that investors' concerns included more than $4.6B in debt -- "mostly from acquisitions made in the past five years -- concerns that was insufficient free cash flow and doubt about optimistic growth projections." Another "dark cloud hanging over the IPO was the ongoing fight with the Writers Guild of America." There was also "concern about the one-sided nature of the deal" that would "create four classes of stock." Emanuel, Endeavor Exec Chair Patrick Whitesell and a few insiders "would own enough to ensure" over 50% control (LAMAG.com, 9/26).

MARKET ADJUSTMENT: CNBC.com's Riya Bhattacharjee noted Endeavor on Thursday before canceling the IPO altogether had scaled back its plans, saying that it "expected to debut the price of its shares between $26 to $29, which is below the $30 to $32 range it estimated last week." An IPO "has been rumored" since Emanuel and Whitesell merged their talent agency with IMG in '13 (CNBC.com, 9/26). VARIETY's Littleton & Maddaus cite a source as saying that Endeavor would have gone public "with an offering of 15 million shares" priced between $26-27. The company had hoped to go public with a market cap around $8B, but investors "were underwhelmed by the IPO road show, causing a price drop" on Thursday from the $30-32 range. The market cap would have dropped to just $6.5B at that price. Emanuel would have gotten a $25M bonus had the market cap reached $7.525B, but the "price cut put that bonus out of reach" (VARIETY.com, 9/26). The revised offering "would have seen the group valued" at about $7.2B at the "midpoint of the new price range." That was down from the $8B it "targeted earlier this month and nearer" to the $6.3B valuation it commanded in '17 (FINANCIAL TIMES, 9/27). CNBC's Melissa Lee asked, "How do you get to the eve of your IPO and then realize at that point after scaling back the IPO earlier in the day that there is weak demand for this thing the night before?" CNBC's Karen Finerman noted it “takes so much energy to get an IPO done that you want to really get it across the finish line almost at any price just to sell some and be public.” But she added, “They’re probably doing the right thing (canceling the IPO)” ("Fast Money," CNBC, 9/26).

PRICE POINT: In N.Y., Kosman & Steigrad cite sources as saying that Endeavor killed its IPO because "orders started coming in as low as $20 a share." Sources said the company "doesn’t plan to try for another IPO until at least next year" (N.Y. POST, 9/27). Endeavor said that it would "continue to evaluate the timing for its proposed offering as market conditions develop." CNBC.com's Patti Domm cited a source as saying that investors "still like the company but not at its proposed IPO price" (CNBC.com, 9/26). The WALL STREET JOURNAL's Farrell, Driebusch, Gottfried & Prang note Endeavor had "already postponed its IPO plans earlier this year as it looked to tout fresher financial results and sought to finalize the acquisition of On Location Experiences." However, Endeavor has "yet to close the deal for On Location" (WALL STREET JOURNAL, 9/27).

BACK TO THE DRAWING BOARD: The L.A. TIMES' Faughnder & Perman note Endeavor was "expected to become the first talent agency to go public, making it the subject of much speculation in Hollywood" (L.A. TIMES, 9/27). BLOOMBERG NEWS' Tse, Baker & Shaw wrote the IPO was "meant to culminate decades of work by Emanuel," who in recent years, along with Whitesell, had "transformed Endeavor from a boutique talent agency into a multipronged media giant that runs sports leagues, hosts fashion events and represents leading athletes as well as entertainers." Endeavor in '16 led a group that bought UFC for $4B. Talent representation "now accounts for less than half its revenue" (BLOOMBERG NEWS, 9/26). The tabling of the IPO is "likely a huge disappointment for top executives and many of the other 7,000 employees who were expected to benefit to the tune of a combined" $1B in equity bonuses (HOLLYWOODREPORTER.com, 9/26).

PART OF A BROADER ISSUE: CNBC's Bob Pisani noted while the market's rejection of Endeavor's anticipated share prices "may be a little bit" about the company, there is a clear trend on Wall Street about "pushing back against higher valuations.” Pisani: "We're definitely in a more questioning part of the IPO cycle right now" ("Fast Money Halftime Report," CNBC, 9/26). CNBC's Jim Cramer noted things are a "little convoluted for the moment" in the IPO market ("Mad Money," CNBC, 9/26). CNBC's Dan Nathan noted there have been "some of the biggest IPOs in a decade" come through this year, and "most of them are under water" ("Fast Money," CNBC, 9/26). CNBC's Brian Sullivan noted nearly half of this year's IPOs -- 57 of 120 -- are "trading below their offer price" as of the close of market on Thursday ("Worldwide Exchange," CNBC, 9/27).