Endeavor IPO sequel has more hope of Disney magic

The company led by super-agent Ari Emanuel is on track to go public again after abruptly scrapping plans to do so in 2019

  
Dividers are seen inside a trading post on the trading floor as preparations are made for the return to trading at the New York Stock Exchange (NYSE) in New York, U.S., May 22, 2020.

Dividers are seen inside a trading post on the trading floor as preparations are made for the return to trading at the New York Stock Exchange (NYSE) in New York, U.S., May 22, 2020.

REUTERS/Brendan McDermid

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

NEW YORK  - Hollywood loves a comeback. Endeavor is hoping Wall Street does too. The entertainment group’s initial public offering sequel may bring it a bit closer to minor Walt Disney status.

The company led by super-agent Ari Emanuel is on track to go public again after abruptly scrapping plans to do so in 2019. Timing worked in Endeavor’s favor given it specializes in sports, live events and talent representation. During the depths of the pandemic, Endeavor had to slash its ranks and borrow money. That and the 24% drop in revenue to $3.5 billion last year would have been tough in the public eye.

Endeavor is now making the Ultimate Fighting Championship its star. The mixed martial arts organization, whose initials appear in the company’s current prospectus nearly 450 times versus only around 300 times in the 2019 version, helped buoy the company through 2020. The business segment where UFC sits managed to increase revenue last year and generated a chunky adjusted EBITDA margin of 48%, while events and such and the company's talent-representation business slumped.

Endeavor has indicated a $23 to $24 per share price range for its IPO, which is due to price on Wednesday. At the high end, the company’s market capitalization would be a bit over $10 billion, in line with Breakingviews’ estimate back in 2019.

Assume that Endeavor can increase its adjusted EBITDA to around $850 million in 2022 from $734 million in 2019, skipping two Covid-affected years, the same 15% ballpark increase as analysts forecast for events specialist Live Nation Entertainment, according to Refinitiv data. Add roughly $4 billion of post-IPO net debt to its market cap, and Endeavor’s enterprise value would come in at about 17 times adjusted EBITDA for 2022, a little shy of Live Nation's equivalent multiple.

But Endeavor will be hoping to be recognized for qualities associated with Disney, which is valued at over 20 times forecast EBITDA for 2022. Endeavor's studio has handled projects including “Hamilton” and it considers UFC key intellectual property, not unlike Disney's "Star Wars" franchise, for example.

Endeavor plans to buy the 49.9% of UFC it does not own. Entrenched founders and five classes of stock are among the risks. But after a year of changes, the company's second attempt to go public may capture a little more Disney magic.

CONTEXT NEWS

- Hollywood entertainment group Endeavor plans to price its initial public offering on April 28 with shares starting to trade the following day. The company indicated a price range of $23 to $24 per share on April 20, according to a draft prospectus filed with the U.S. Securities and Exchange Commission, and held the range steady in a subsequent filing on April 26.

- At the high end of the price range using a fully diluted share count, Endeavor's market capitalization would be $10.3 billion.

- At the same price, Endeavor would raise $511 million in the IPO. A private placement at the same time, backed by investors including Fidelity, Third Point, China's Tencent and Abu Dhabi's sovereign wealth fund, would take the company's combined net proceeds to around $1.8 billion.

(The author is a Reuters Breakingviews columnist. The opinions expressed are her own.)

(SIGN UP FOR BREAKINGVIEWS EMAIL ALERTS http://bit.ly/BVsubscribe | Editing by Richard Beales and Amanda Gomez) ((jennifer.saba@thomsonreuters.com; Reuters Messaging: jennifer.saba.thomsonreuters.com@reuters.net))

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