A Hollywood talent agency may be complicating the script for its own initial public offering. Endeavor filed to go public on Thursday with a complex structure. There are good reasons for aspects of it, but questionable governance and an industry in flux may push the company run by Ari Emanuel to B-list status for investors.
Formerly the William Morris Agency, the powerhouse firm is known for representing Tinseltown royalty from Charlie Chaplin and Marilyn Monroe to Oprah Winfrey, Matt Damon and Ben Affleck. It also owns sports-marketing pioneer IMG, the UFC mixed martial-arts franchise and the Miss Universe pageant, while maintaining partnerships like licensing with such outfits as Epic Games’ “Fortnite.”
During its last private funding round in 2017, Endeavor was valued at $6 billion. Emanuel’s outfit can be compared to some combination of Live Nation Entertainment, Manchester United, Madison Square Garden and World Wrestling Entertainment. Apply the group’s average enterprise value-to-sales multiple of just under 4 times to Endeavor’s 2018 revenue of $3.6 billion and it could be worth approaching $10 billion after backing out net debt of about $4 billion.
As glittery as the lineup and the theoretical valuation may be, there are complicating risks. For starters, Endeavor will have four classes of stock. Thanks to one supervoting class Emanuel, Executive Chairman Patrick Whitesell and investor Silver Lake Partners will control the company. In a town built on relationships there are good reasons for keeping those with the best contacts close. But long contracts for the top executives and a staggered board entrench them even more deeply. IPO investors will just be along for the ride.
Buyers of Endeavor stock also have to get their heads around a so-called “Up-C” structure, used by others like restaurant chain Shake Shack when they went public. It adds convolutions while allowing former partners to share in tax benefits.
The entertainment business is going through its own changes too. For example Endeavor, along with rival firms, is battling the Writers Guild of America, which has suggested its members fire their agents because of conflicts of interest. The IPO of this group of Hollywood superagents demands investor super-tolerance.