Veteran media analyst Todd Juenger of Bernstein has offered one of the first detailed looks at Endeavor from a Wall Street perspective ahead of its planned IPO. His conclusion: Investing in the com…
over Endeavor’s producing activity and conflicts of interests that can pose, Juenger says radical changes to conventional business models have forced agencies to explore alternatives. “Most industry observers agree that the idea of returning to the simpler days of pure commission is unrealistic,” the analyst writes. “Talent agencies haven’t worked that way for decades.
One major financial issue with Endeavor, in Juenger’s view: “an extraordinarily high amount of debt,” reaching 9.5 times EBITDA if equity compensation is counted as an expense. Proceeds from the IPO, which he said in a bullish case could hit $900 million, will be “wholly used to reduce net debt.” Even so, the company will likely carry a “substantial debt load” and has a “questionable ability to de-lever organically.
The upside of the leverage scenario could be share price. “Current investors must surely be uncomfortable operating a volatile business under such a large debt load,” Juenger writes. “So we think Endeavor is motivated to go public and raise equity to reduce this indebtedness, which could translate into a more favorable offering price for equity investors.”
Operationally, Juenger writes, “most of the underlying earnings are both volatile and unpredictable.” In the first quarter, according to the May filing, adjusted earnings dropped 10% from the comparable period in 2018. Risk factors abound, including the violence and “bombast” of UFC talent, possible brain drain .
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