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April 29, 2021, 6:14 a.m. EDT

William Morris parent Endeavor’s IPO: 5 things to know about the entertainment giant

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Ciara Linnane

Endeavor Group Holdings Inc., the Los Angeles–based entertainment powerhouse and owner of the William Morris Agency, sports and modeling agency IMG and mixed-martial-arts outfit UFC, priced its initial public offering late Wednesday at the top of its expected price range.

The company sold 21.3 million shares, priced at $24 each , the top of its proposed price range of $23 to $24, raising about $511 million at a valuation of a little over $6 billion.

A previous effort to complete an initial public offering was canceled in October of 2019, following pushback from investors who were put off by its complicated finances at a time when other deals were flopping.

The timing is unusual for this second bid, too, given that the company has taken quite a hit during the pandemic, which halted live events and TV and film production — the businesses Endeavor relies upon to make money.

“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 acknowledges in its filing documents.

Endeavor /zigman2/quotes/214253748/composite EDR +5.82% is now betting heavily on UFC’s future and intends to use proceeds of the deal and a $1.7 billion private placement with private-equity firms to acquire the 49.9% stake in UFC that it doesn’t already own. That stake was snapped up by Silver Lake Partners and KKR /zigman2/quotes/206126495/composite KKR +2.58% when Endeavor purchased a 50.1% stake in UFC in 2016.

UFC was the first major American sport to resume live events in 2020.

In another move that has caught attention, Tesla Inc. /zigman2/quotes/203558040/composite TSLA -6.42% Chief Executive Elon Musk is joining the Endeavor board.

“His name carries a lot of weight with retail investors,” said Matthew Kennedy, senior IPO market strategist at Renaissance Capital, a provider of IPO ETFs and institutional research.

Retail investors have contributed to the more than 628% rise in Tesla shares over the last year and the accompanying mania for all electric-vehicle companies and their suppliers.

“This will be pitched as a ‘postpandemic’ growth story about consumers eager to once again go to live events,” said Kennedy. “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.”

In fact, Endeavor mentions the word streaming 62 times in the offering prospectus, up from 42 last time around, he said.

See also: IPO market cools as sentiment moves from ‘wildly overoptimistic to optimistic’

A dispute with the Writers Guild of America that acted as an overhang the last time Endeavor attempted to go public has been resolved. But the company’s financials look shaky in the pandemic world. Its net loss widened to $625 million in 2020 from $530.7 million in 2019, the prospectus shows. Revenue shrank to $3.479 billion from $4.571.0 billion.

Endeavor share will start trading on the New York Stock Exchange later Thursday, under the ticker symbol “EDR.” There were 22 banks underwriting the deal, led by Morgan Stanley and Goldman Sachs.

The following are five things to know about Endeavor.

Endeavor is a company with highly complex accounting

Endeavor’s latest prospectus seeks to make its sprawling financial reporting more transparent, by breaking the business down into three segments: owned sports properties; events, experiences and rights; and representation. As it did in 2019, the company presents that structure as one that is designed to help clients of William Morris and IMG take advantage of opportunities in an increasingly direct-to-consumer world.

“The events of 2020 reminded us of the enduring value of premium intellectual property and content, while reinforcing the strength of our position within the sports and entertainment ecosystem,” Chief Executive Ari Emanuel wrote in a letter included in the prospectus.

But the company’s accounting remains highly complex and includes many discontinued operations, write-offs, depreciation from owned franchises and revalued assets. The company has more than 6,400 employees working in 28 countries.

It also has huge upfront costs in acquiring the rights to content that may in the end not resonate with consumers, whose tastes change all the time, the company says in its risk factors. For example, as of Dec. 31, the company has committed to spending about $2.2 billion in guaranteed payments for media, event or other representation rights and similar expenses, “regardless of our ability to profit from these rights.” 

$ 20.91
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May 20, 2022 4:00p
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$30.67 billion
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$ 663.90
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Volume: 48.32M
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