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.
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