The news of Endeavor’s IPO and concurrent purchase of the outstanding portions of the UFC has received positive reviews. Moody’s Investors Service believes the IPO would be a ‘credit positive.’
The net proceeds of the IPO and additional privately raised equity would be used to pay for the remaining 49.9% of UFC Holdings, LLC which is retained by KKR and Silver Lake from the 2016 acquisition from the Fertitta Brothers. Endeavor anticipates raising $1.75 billion to buy the rest of the company of which it held 51.1% at the time of its purchase in July 2016.
The UFC has been a saving grace of sorts of Endeavor’s portfolio of businesses. During the pandemic, it was one of the only assets the company had which brought in revenue. As noted by Moody’s, Edneavor’s full ownership would increase the amount of stable free cash flow available to support WME IMG.
Via Moody’s :
UFC has performed well during the pandemic given the ability to hold UFC’s mixed martial arts (MMA) events at locations that were less impacted by the pandemic or faced less restrictive health requirements from local officials. The limited number of participants in MMA events compared to other professional sports leagues also reduced the risk of spreading the coronavirus to other athletes and officials. While many UFC events in 2020 were held with limited or no fans, attendance related revenue represents a modest portion of UFC’s overall revenue. The majority of UFC’s revenues are earned from contractual long-term media and pay per view deals that allowed UFC to continue generating strong results, despite the pandemic. UFC made distributions to shareholders including minority owners as well as parent company, Endeavor, which used the proceeds to provide liquidity to WME IMG in 2020. Endeavor’s ownership of 100% of UFC would increase the amount of UFC’s relatively stable free cash flow available to support WME IMG if needed for liquidity or additional acquisitions going forward
Also of note from Moody’s regarding the governance after the purchase:
Moody’s expects WME IMG’s governance to improve if Endeavor goes public with improved financial reporting and quality of information, although Endeavor’s segment reporting is expected to differ from the financial reporting of WME IMG and UFC’s respective credit groups.
Payout Perspective:
It appears as though under the acquisition, Endeavor will run UFC Holdings, LLC much more conservatively than in the past. It will not use debt capacity as it done in the past for acquisitions or ‘equity friendly transactions,’ rather reduce ‘net leverage.’ This would appease publicly traded shareholders and prospective investors that view the balance sheets of a company on the stock exchange. Simply put, shareholders want to see less debt on the books rather than more. Of course, things are fluid and MPO will continue to follow this evolution into an IPO.
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