Endeavor calls a halt to IPO

September 26, 2019

Endeavor has shuttered its IPO which was set for Friday amid concerns of weak stock market demand.  Earlier in the day, the company had lowered expectations of its share price prior to making the announcement that it would delay the IPO.

The company anticipated raising $600 million with the IPO.  But investors seemed unimpressed with the company’s “road show” which was intended to entice those willing to stake a claim into the company.  According to a report in the New York Post this morning, the rumor from those in the know was that Endeavor was not receiving the buzz it wanted.

Notably, exercise equipment maker Peloton went public Thursday and its stock dipped from its initial opening price of $29.  Witnessing the treatment Peloton received on the Street seemed to be one of the reasons Endeavor decided to not go through with its IPO.  Similar to Peloton, Endeavor suffers from a high debt load – a characteristic that appears to be a concern with investors.

Moreover, the IPO market has not been kind to companies.  Similar to Peloton, Uber experienced a decline in its stock when it launched in May.  WeWork has had internal problems which postponed a potential IPO and now it appears that the company is unravelling.

Bringing a halt to the Endeavor IPO is a sign that investors are concerned with the debt that it currently holds.  According to The Motley Fool, Endeavor carried a $4.6 billion debt load and the IPO capital would have helped pay off one of its loans.

Via The Motley Fool:

It goes like this: in conjunction with its 2016 acquisition of UFC, UFC — now a subsidiary of Endeavor — issued $360 million preferred equity units. On Sept. 11, these preferred note-holders redeemed the notes at the earliest date possible (the third anniversary of the acquisition). Including interest and the early call premium, Endeavor quickly paid $537.7 million to these preferred equity holders. To do so, Endeavor used $77 million of cash on hand and drew $465 million of UFC First Lien Term Loans.

As a result of these maneuvers, The Motley Fool states that this may have put the company in violation of its debt covenants:

The company’s debt covenants say that Endeavor’s first-lien debt cannot exceed 7.5 times its adjusted EBITDA in certain circumstances, and drawing the extra $465 million for the UFC preferred notes should have brought first-lien debt load to about $4.97 billion. That’s a bit over 8.3 times the trailing 12-month adjusted EBITDA of $594 million.

One should note that it’s not the UFC that is the concern for the company.  The New York Post indicated that there was concern with the UFC’s competition.  However, more pressing may be the company’s dispute with the Writer’s Guild of America.  Additionally, the company’s inability to close a deal to acquire On Location Experience may have contributed to the demise of the IPO.

Internally, postponing (indefinitely) the IPO may hurt the employees that had hope to reap the benefits of an IPO.

What will happen next?  With the markets fluctuating, people concerned with a looming recession and investors turning their back on companies rich in content but heavy on debt, we may not know when or if Endeavor will announce an IPO.

Endeavor’s IPO faces weak opening according to report

September 26, 2019

The New York Post reports that Endeavor’s IPO is facing a weak opening.  The company goes public on Friday.

Earlier this week, the company anticipate to price the IPO at $30-$32 per share as it will open on the New York Stock Exchange under the EDR ticker symbol.  However, the New York Post reports that the price range could fall “as low as $25 to $26 per share.”  Although a remote option, the Post notes that a source indicated that it may pull the IPO but that option is less likely.

The belief, according to the Post article, is that investors were not impressed with the “road show.”  The company has positioned itself as a “growth company that can seize on the volatility of the media industry.”  However, “there are some concerns about the company’s portfolio.” One of which is the UFC.  The article notes that the UFC, “Endeavor’s biggest earnings driver, is facing an influx of competition…”

Notably, on Wednesday, Peloton the fitness startup that sells its own subscription-based exercise equipment priced at $29 per share which was at the high-end of the expected range.

Payout Perspective:

Its hard to tell whether the article is based on speculation or if there is truth to the concern that the IPO is in jeopardy.  WeWork has delayed its IPO indefinitely as its valuation has collapsed due to issues with its infrastructure and the ousting of its founder and CEO.  But, Endeavor will not experience such a collapse.  But its initial offering could fail to meet expectations based upon the article.  The UFC facing an “influx of competition” seems far-fetched even if they believe the finances of One Championship.  Certainly, Bellator is an established organization in the U.S. but falls far from usurping the chokehold the UFC has on the MMA industry.  The article could be a way as to temper expectations if Friday’s opening fails to yield the support it desires.  What will be interesting is seeing how this will determine how the UFC’s expectation of its own IPO evolves in the not-too-distant future.

Endeavor to launch IPO this Friday

September 23, 2019

Endeavor Group Holdings intends to launch its IPO this Friday, September 27th.  The company plans to price the IPO at $30-$32 per share trading on the New York Stock Exchange under the EDR ticker symbol.

The company is backed by Silver Lake among other underwriters and is targeting an $8 billion valuation per The Financial Times.  It is anticipated that the IPO will raise $712M.    The company plans to offer 19.4 million common shares with the underwriters having the option on 2.9 million more.

As many know, EDR owns the Ultimate Fighting Championship.

The launch date comes ahead of October as Goldman Sach strategists warned of “high October volatility.”

Payout Perspective:

In an amended SEC filing last week, Endeavor brought in over $2 billion in revenue which shows an improvement from $1.5 billion in the previous years.  It also showed narrowing of financial losses.  One might assume that the UFC is one of the sports properties that many investors will scrutinize when assessing EDR stock.  The company has done will in increasing its revenue largely from its media deal with ESPN which has been a boon for both the promotion and ESPN vis a vis its digital platform.

Report: Zuffa obtains new loan, 2nd Quarter earnings over $700M

September 11, 2019

Reuters reports that Zuffa will be adding a $465M loan to its existing $1.875 billion loan as the company has benefited from its media rights deal with ESPN.  Per Moody’s, revenues as of the second quarter of 2019 have the company clearing over $700 million.

The boon for the UFC comes from its expanded media rights deal with  ESPN which began in May 2018 and expanded in March 2019 with the digital platform being the exclusive provider of UFC PPVs.

The add-on loan will be tacked on to the Zuffa’s existing $1.875 billion term loan B that is set to mature in 2026.  The additional money will provide the company with additional cash flow.  Moody’s reports that “$80 million of cash from the balance sheet are expected to be used to fully redeem the preferred equity outstanding and pay transaction related expenses.”  It also shows investors that the company is moving in the right direction.  With UFC 242 this past Saturday, there are continued talks of the company holding more events in the region which is fertile ground for the promotion.

According to the report, the UFC will have roughly 70% of contractually-fixed pro forma revenue from its media rights deal this year which is up from an earlier forecasted 40%.

Goldman Sachs will be underwriting the latest loan and will be offering the same terms as the original debt.  Per the report, “325bp over Libor, with a 1% Libor floor, and a discount of 99.5-99.75 cents.”

According to a Moody’s report, the additional loan will not affect the existing loan’s B2 rating.

Payout Perspective:

The UFC partnering with Disney-owned ESPN has been the right move for the company as the revenues for the promotion are up.  For ESPN, having the UFC on its digital platform has helped with content and boosted its subscriber base.  The additional loan and its rating reflect the credibility of the company and its ability to obtain favorable debt based on the prospects of its business.

Endeavor IPO delayed until fall

August 2, 2019

The Wall Street Journal reports that Endeavor, the company which owns the UFC, is postponing its IPO until September as it awaits a deal to buy a premium-hospitality and live-events company in hopes of showing investors that it is diversifying its portfolio.

The news comes at a time when the market is hot and little volatility.  The concern, as always, is that headwinds are on the horizon and an imminent market downturn will happen soon.  But, no one knows this as a certainty.

The cause for the delay may be the company’s hope to puff out its fiscal muscle more for investors as it wants to show off its second-quarter results so that it can get a higher public valuation.  According to the WSJ, it is seeking a valuation between $7 billion to $8 billion and raise in excess of $500 million in its IPO.

Earlier this week it was revealed in a Securities and Exchange Commission filing that Endeavor’s CEO Ari Emmanuel received a pay bump and is set to score a financial windfall when the company comes to market.  Endeavor is the primary owner of the UFC with the dominant amount of voting stock of the company.

In an SEC Filing, it revealed that Emmanuel’s salary was raised from $1M to $4M with bonuses reaching near $6M.  Emmanuel could make equity awards near $12.5M if the UFC hits certain financial goals.  He could make $14M if the UFC goes public on its own and those targets are met.

The S-1 Filing by Endeavor markets itself as a global entertainment, sports and content company.  It acquired sports and modeling agency IMG in 2014 and Zuffa in 2014.

It’s S-1 includes Dwayne “The Rock” Johnson as a ‘Talent Case Study’ as to how Endeavor has helped the pro wrestler-turned actor-turned media mogul through different aspects of its divisions.  It lists the UFC as an ‘Owned Asset Case Study.’ The study states, “With more than 300 million fans, including over 80% of fans outside the U.S., and one of the youngest (e.g., 40% millennials in the United States) and most diverse demographics in all of sports, UFC continues to sell out some of the biggest and most prestigious arenas around the glove, while broadcasting over 160 territories to approximately 1 billion households.”

Payout Perspective:

The delay in going to market shouldn’t be seen as a weakness here as its clear that Endeavor wants to bolster its valuation through the acquisition of the New York-based On Location Experiences, LLC.  There has been speculation that the UFC would branch off of Endeavor and launch its own IPO in the future although that does not appear to be the case at this time.  Emmanuel’s salary and financial boon if things go as planned is not shocking although given the debate on fighter pay, the disparity between the CEO and a contracted fighter is one that is hard not to recognize.

UFC Holdings follows market trend of reducing ‘debt cushion’

May 17, 2019

The Wall Street Journal reported late last month that the UFC was paying off its junior loan utilizing a senior one in order to reduce its overall debt load.  The move comes on the heels of an exclusive PPV deal with ESPN and the lack of concern that the Federal Reserve will raise interest rates.  The reduction of ‘debt cushion’ is a market trend by some companies to the chagrin of senior debt holders.

UFC Holdings, the official name of the entity for the UFC, sold $435 million of an add-on to an existing $1.44 billion loan that was due in 2023 and now has been extended to 2026.  The addition to the loan was sold at $99.75 on the dollar which included a discount to where the existing debt traded.  The company also paid existing loan holders a modest fee to allow the transaction.

The new debt will be used to pay off a more junior loan which eliminates a ‘debt cushion’ for senior lenders as junior debt (i.e., bonds and loans) are typically the first pieces of debt to absorb losses in bankruptcy.  Essentially, if the company were to go bankrupt the junior loans would be the most vulnerable in not being paid back as the most senior creditors would have the first chance at the assets which may leave junior debt out of luck in repayment. In this case, the junior loan had a higher interest rate than the senior loan.  The floating interest rate on the junior loan has been the London interbank offered rate plus 7.5%, or 4.25 percentage points higher than the rate on the senior loan.  Thus, the move aids in eliminating interest on the junior debt.

The transaction seems to be a growing trend in debt financing as more companies are reducing ‘debt cushion.’  This occurs in instances of speculative grade loans and instances where the junior loan has a higher interest rate than the senior loan.  To the chagrin of senior debt holders, paying down a junior loan is not favored as one might recognize that paying down a junior debt means that in the worst-case scenario for a senior debt holder, if a bankruptcy were to occur, assets previously used to pay off the junior debt will not be there to pay off the senior debt.

Via WSJ:

Last year, buyers of first-lien loans were paid 0.83 percentage point above the benchmark London interbank offered rate for every multiple the loans exceeded a measure of borrowers’ cash flow, according to LCD. That was the smallest amount since 2007, when lenders were paid just 0.69 percentage point.

Also, according to WSJ, 27% of first-lien loans, mostly held by senior type of debt held by investors were not backed by companies that didn’t have junior outstanding debt.

If you were wondering, this is analogous to using a credit card to pay off one with a higher interest rate.  Using a loan to pay off another might not seem like the most financially secure way to address debt load issues for a company and concerns senior debtholders that hold priority over the junior debtholders.  But a number of factors (as outlined above) likely made this move prudent.  First, Disney’s 7-year agreement to pay a “fixed license fee” to air its PPV fights exclusively in North America was seen as to “dramatically reduce the volatility” of UFC’s business.  Secondly, the market to purchase debt is on an uptick.

Here’s another reason that reducing debt cushion is a thing.  According to Moody’s, the company’s debt to EBITDA would fall to 5.5 times from 7.8 times which is said to potentially put lenders in a stronger position even without a debt cushion.  UFC Holdings’ existing loans in 2016 were said to have an EBITDA of $170 million by one measure and $300 million by another which was based on speculative future TV revenue.  Regardless, it borrowed another $100 million in 2017.

Of course, we may now know a little more about the TV revenue since its deal with ESPN.  Moreover, the deal likely assuages lenders about the debt.  Essentially, the speculative nature of the deal became less speculative.

The move pays off the interest rate of the junior debt but senior debt holders are weary as there is potential for not being made whole at the end.  But, it lowers its overall multiple which would allow it to be more lucid in investing and future debt restructuring.

MPO year in review – UFC takes out loan, cashes out Fertittas

December 23, 2017

In April, the UFC sought to raise $100 million in incremental loans to complete its buyout of the previous owners.  It appears that the UFC received those loans as the Fertittas cashed out the remaining shares they had left in the company in August.

KKR Capital was leading the effort in obtaining the loans for the company.  According to an investor presentation, with the $100 million loan, the UFC will be at 5.8 times whereas the first lien net leverage would be 4.8 times.

The UFC is marketing the company at $320M EBITDA which is an increase from an estimated $226M EBITDA from 2016 and $192M from 2015.  The numbers come from an investor presentation although there is skepticism about the vast jump from $226M to $320M.  Additionally, it is said that the company’s cuts once it took over in July has achieved cost savings of $10 million and it is projected to save $55 million by the end of 2017.

The UFC is seeking to raise $100 million in incremental loans to repay the previous owners (i.e. Frank and Lorenzo Fertitta and Flash Entertainment) in the case of a potential earnings-based payout according to a report from Reuters.

The payouts of $175M and $75M are due in the event of EBITDA milestones.  According to the Reuters report, the first payout could be due in the latter part of 2017.

KKR Capital, which took over from Goldman Sachs in January as the lead financier, is leading the process for this new loan.  Federal regulators took issue with Goldman Sachs due to its add-backs in projecting the company’s EBITDA.  KKR is not subject to the federal leverage lending guidance.

According to an investor presentation, with the addition of the $100 million loan, the UFC will be at 5.8 times (debt leverage) whereas the first lien net leverage will be 4.8 times.

The UFC is marketing the company at $320M EBITDA which is an increase from an estimated $226M EBITDA from 2016 and $192M from 2015.  The numbers come from an investor presentation although there is skepticism about the vast jump from $226M to $320M.  Additionally, it is said that the company’s cuts once it took over in July has achieved cost savings of $10 million and it is projected to save $55 million by the end of 2017.

In August 2017, Forbes reported that the Fertittas sold their remaining stake in the company. They received roughly a 26% premium over last year’s transaction.  The company acquired for $4.2 Billion dollars in July 2016 was valued at $5 Billion over a year later.

WWE announces Q2 2017 financial results

July 27, 2017

The WWE beat profit forecasts as it announced its Q2 (ending June 30, 2017) 2017 results on Thursday.  It announced that revenue increased to a record $214.6 million.  The WWE Network average more than 1.63 million average paid subscribers over the second quarter.

WWE stock was up slightly in after hours trading to $21.94.  The company reported net income of $5.1 million or $0.06 per diluted share as compared to $0.8 million or $0.01 per share in 2016.

The WWE’s shares have climbed 18 percent since the start of 2017.  The revenue for Q2 2016 was $199 million.

The increase in revenue was driven by the monetization of video content across the Company’s Television, Network and Digital Media business segments according to the Company.  Television rights fees appeared to be the main revenue driver in this segment.

As for the network, the subscribers are up from year to year with last year subscribers at 1,560,000.  As of the end of 2016, there were 1,473,000 subscribers.  However, the increase in subscriptions changes when contemplating the actual paid subscriber base.  At the end of Q2 there were 1,568,000 subscribers versus 1,511,000 subscribers at the end of Q2 in 2016.

It also announced that WrestleMania this past April broke the attendance record for the Orlando Citrus Bowl with 75,245 fans and reached 1.95 million global households on the WWE Network.

Second securities lawsuit filed against Alliance MMA

May 9, 2017

A second securities lawsuit has been filed against Alliance MMA for claims that it misled investors.  The new lawsuit filed May 3rd is in the United States District Court for the Southern District of New York and seeks class action status.

The lawsuit arises out of an amendment made by the company which trades on the NASDAQ.  In an 8-K filing made by the company last month, it stated that financial statements previously made for the nine months ended September 30, 2016 included in the Company’s Form 10-Q, three months ending June 30, 2016 and six months ending June 30, 2016 could no longer be relied upon because of an error in recognizing as compensation transfers of common stock by an affiliate of the Company to “individuals who were at the time of transfer, or subsequently became, officers, directors or consultants of the Company.”

The Complaint filed by plaintiff David Shulman states that Alliance MMA completed its IPO that consisted public sale of 2,222,308 shares of the Company’s common stock at $4.50 per share.  According to a Declaration from the Plaintiff filed with the Complaint, he purchased 100 shares of Alliance MMA on October 16, 2016 for $3.99 per share.

As of this writing on Tuesday, May 9, 2017, the stock is trading around $1.53 per share.

A Second Alliance MMA Lawsuit by JASONCRUZ206 on Scribd

Certification of Plaintiff in Second Alliance MMA Lawsuit by JASONCRUZ206 on Scribd

Payout Perspective:

The lawsuit is similar to the one filed in New Jersey last month.  One might expect a similar response from Alliance MMA in that it has retained a law firm to defend itself against these allegations.  With an issue like this, it is expected that Plaintiff attorneys smell blood in the water and search for investors that may have been harmed from the misstatements made by the Company.  MMA Payout will continue to follow the situation.

Fertittas establish private equity firm

May 1, 2017

The Wall Street Journal reports that former UFC owners Lorenzo and Frank Fertitta have started a $500 million private equity fund, Fertitta Capital.  The company aims to target consumer-facing companies in tech, media and entertainment.

The Fertittas sold the UFC for near $4 Billion this past July and with its newfound liquidity it decided to start the investment company.  The company, which will be based out of Los Angeles, will be run by former UFC Chief Financial Officer Nakisa Bidarian.

The company intends to take minority positions in companies but will not rule out taking controlling stakes and larger deals of up to $500 million.  According to the article, the fund is set to deal in direct-investing for the long-term with flexible as Lorenzo Fertitta notes that the basis of the premise was from his experience with would-be buyers approaching them about acquiring the UFC.

Payout Perspective:

The news is not shocking as Fertitta Capital will likely takes its lessons from the UFC and apply that to its investing strategy.  With the tech, media and entertainment sector continued growth, it can pick and choose where to invest.  As a private equity firm, there is less regulation which gives them some flexibility in how they structure deals.

Next Page »