Because Ari Emanuel’s Endeavor is probably going private again

Two years ago, Ari Emanuel’s entertainment group Endeavor debuted on the public market, becoming the first Hollywood talent agency to do so.

The initial public offering was seen as a test of the gutsy Hollywood super-agent’s long-term vision for the Beverly Hills company – that combining live events businesses such as Professional Bull Riders, New York Fashion Week and the Frieze London art fair with the giant talent agency WME would create an “Endeavor flywheel.”

But investors were skeptical of the central thesis that Endeavor was worth more than the sum of its seemingly disparate parts. At the end of last month, Endeavor signaled that it may discourage being a public company.

The company on Oct. 25 told investors it was exploring its strategic options, which is often a sign that a company is putting itself up for sale.

“Given the continued drift between Endeavor’s public market value and the intrinsic value of Endeavor’s underlying assets, we believe that evaluating strategic alternatives is a prudent approach to ensure that we maximize value for our shareholders,” said Emanuel in a statement.

In other words, executives and investors have been disappointed by the company’s low share price, despite Endeavor’s profitability and earnings. Since the company’s announcement, Endeavor’s stock price has fallen to $17.72 per share, down 30% from its opening day close of $25.20. The stock has underperformed the S&P 500 this year.

“What Ari has created is an entertainment conglomerate, and investors don’t really see how the parts fit together, especially the synergies between them,” said Lloyd Greif, a Los Angeles-based investment banker who tracks entertainment operations. “They don’t have the vision or the strategy.”

Shortly after Endeavor’s announcement, a possible outcome emerged.

Its largest shareholder, private equity firm Silver Lake, said it wanted to take Endeavor private. smallilver lake said to a statement that it “strongly believes in Endeavor’s business” and “is not interested in selling its shares in Endeavor to third parties or bidding for assets that are part of Endeavor”.

The duel’s press releases struck some industry observers as unconventional and raised questions about whether the two companies were on the same page.

Some interpreted Silver Lake’s move as a way to discourage potential buyers from coming forward, thereby reducing the risk of a competitive bidding process. Silver Lake, which has been an investor in Endeavor since 2012, owns 71% of the voting shares. As such, he has a huge influence on Endeavor’s future and a significant stake in its success.

“They can put the company in a bear hug – the only way anyone can take Endeavor away from them would be to outbid them, and that’s highly unlikely as Silver Lake has sent a very clear message that they want to they’re taking Endeavor private,” Greif said. .

Endeavor and Silver Lake declined to comment. In its release, Endeavor said it has not set a deadline for its review process and added, “There can be no assurance that this process will lead to any specific outcome.”

The nature and history of Endeavor – and the sharp elbow of Chief Executive Emanuel – is anything but conventional.

Emanuel founded Endeavor when he and three other agents left ICM to start their own agency in 1995. A security guard saw an assistant taking files, and ICM leaders realized the documents for the four agents were gone. ICM’s president threatened to sue. Emmanuel replied: “Listen, I don’t work for you. Do whatever you want.”

In 2009, Endeavor merged with the William Morris Company to become WME. It later bought other companies, including the Ultimate Fighting Championship, making it a diversified, expanding entertainment company.

Endeavor planned to launch an IPO in 2019, but later delayed it due to market conditions. During the COVID-19 pandemic, which hit entertainment businesses, including agencies and sports leagues, there were rumors that Endeavor might file for bankruptcy or be sold for parts, though those rumors never materialized. Endeavor finally went public in 2021.

To succeed in the public market, Endeavor needed to convince investors that bringing all these entertainment and live events companies into one group would create a virtuous circle of A-list talent, brands and events that were more valuable than its own pieces. .

He would also have to overcome doubts about the talent business, which is notoriously unpredictable, something Wall Street typically dislikes. Hollywood agencies make money when clients get work, and their fortunes are affected when a star leaves for another agency, which happens all the time. To adapt to this reality, agencies have diversified beyond film and television stars to also represent brands, influencers and sports stars. WME clients include Dwayne Johnson and Oprah Winfrey.

Even Emanuel admitted in a panel discussion at Bloomberg’s Screentime conference last month that “our story at Endeavor was a little confusing” for Wall Street.

“There is a strong misalignment between Endeavor’s current share price and the sum of the businesses and equity interests the company owns,” said Brandon Ross, an analyst at LightShed Partners. “Without strategic action, there is no line of sight to close this sale.”

Endeavor has taken steps to try to boost its stock. In April, he made a deal to merge the UFC with World Wrestling Entertainment into a new publicly traded company called TKO. Endeavor owns a 51% controlling interest in TKO and Emanuel serves as the company’s CEO.

But Endeavor’s stock has continued to slide, with TKO’s share price down 17% since the company went public on Sept. 12, reflecting market jitters about sports rights as cable companies lose more subscribers. on streaming services.

Endeavor said it would not consider selling its stake in TKO as part of its strategic overhaul, but analysts speculated the company could look to sell other assets if it went private.

There was also hope of a halo effect after a majority stake in rival Creative Artists was sold to a $7 billion valuation of Artémis, the investment firm of the billionaire Pinault family. But this optimism was short-lived.

“The market valued the non-TKO Endeavor assets as going out of business despite the recent CAA acquisition at a very high multiple,” Ross said.

Emanuel has made no secret of his disappointment with his company’s valuation. Nor has he quelled his sometimes combative nature, a hallmark of high performers in the hard-line agency industry but less common at other public companies, where executives tend to stay buttoned-up and stick to bland corporate language. In an appearance on Freakonomics Radio, Emanuel compared CAA, unfavorably, to Walmart.

At the Bloomberg conference, he took a personal shot at his rivals, calling on CAA co-presidents Bryan Lourd and Kevin Huvane to take time off after an actress sued the two agents for discouraging her from reporting sexual assault. . The CAA called the claims baseless.

“We deserve a lot more and we have more morals and we have a better job,” Emanuel said.

CAA’s Lourdes hit back. “We all know that Ari Emanuel is incredibly executive, volatile and in my mind, always self-serving, largely to the detriment of not only his colleagues, but his clients … and most importantly, his investors,” Lourd said. . adding that he was falsely accused in the lawsuit and would address it in court.

Prices of both Endeavor and TKO rose after Endeavor announced plans to explore alternatives.

However, the entertainment industry’s broader problems, including the recently resolved writers’ strike and the ongoing actors’ strike, continue to hurt Endeavor’s business. The twin strikes halted film and scripted TV production for much of this year, at a time when the business is already struggling with the transition from traditional TV to streaming. The writers’ strike ended in late September, but the actors’ strike continued from mid-July.

“It doesn’t look like this black cloud is going to leave Endeavor any time soon,” Greif said. “They probably feel like the ‘Peanuts’ character Pig-Pen. They always hang around with a cloud of dust surrounding Endeavor that they can’t seem to shake.”

Times staff writer Stacy Perman contributed to this report.

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