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Endeavor Pulls IPO Amid Investor Concerns, Market Instability

Ari Emanuel WMG-IMG Endeavor
REX/Shutterstock/WME-IMG

At the eleventh hour, Endeavor has pulled its plan for a public offering of shares on Friday in the face of lukewarm investor reaction to the company’s financials and instability in the IPO market in recent weeks.

A knowledgeable source confirmed that Endeavor has tabled plans to go public as of Friday with an offering of 15 million shares priced between $26-$27. It’s unclear if the company will still pursue an IPO at a later date.

Endeavor in a statement described the decision as a postponement. “Endeavor will continue to evaluate the timing for the proposed offering as market conditions develop,” the company said.

Endeavor’s decision comes as IPO investors have become increasingly skittish in recent months. WeWork delayed its offering last week, and bicycle maker Peloton had a disastrous opening day on Thursday, as its shares were trading well below the IPO price. The quick drop of Peloton shares had a big impact on Endeavor’s decision to postpone.

“IPO investors are on strike right now,” said Kathleen Smith, principal at Renaissance Capital, a manager of IPO exchange traded funds. “This impacted the demand for the Endeavor deal.”

Smith said that without the cash infusion, Endeavor may have to manage more conservatively or forgo further acquisitions — especially in light of the company’s debt load.

The tabling of the offering for now raises questions for Endeavor CEO Ari Emanuel on next steps, and for Endeavor’s investors, including its primary private equity partner Silver Lake, as well as for insiders at the various companies under the Endeavor umbrella.

At WME in particular, it’s no secret that numerous insiders have been expecting to see a windfall from the long-planned IPO. There’s sure to be some frustration expressed now that there’s a delay in monetizing those shares. WME’s rivals were quick to note that the industry powerhouse may be vulnerable to having high-performing agents recruited away by competitors for the first time in years. Endeavor may have to pay out some retroactive bonuses to calm the waters, industry insiders speculated.

At the same time, sources inside WME said there remains among the agency’s top managers a strong sense of solidarity with Emanuel, despite the ups and downs of the IPO process. “Nobody is betting against Ari. It was just a bad moment” for an IPO, said a senior WME source.

Endeavor had hoped to go public with a market cap near $8 billion. But investors were underwhelmed by the IPO road show, causing a price drop on Thursday morning from $30-$32 per share to $26-$27. At that price, the market cap would have dipped to just $6.5 billion.

Emanuel was set to receive a $25 million bonus had the market cap reached $7.525 billion. The price cut put that bonus out of reach.

From Emanuel’s perspective, sources say, the decision to yank the IPO at the last minute came down to an unwillingness to let the company be devalued because of a shaky overall market for new offerings, as evidenced by the struggles of ride-sharing giants Uber and Lyft and most recently, Peloton.

The news that the offering had been withdrawn came as a surprise to many insiders in Endeavor, including some who traveled from the West Coast to be on hand for what was scheduled to be a traditional gavel-banging ceremony to herald the company’s debut on the New York Stock Exchange.

Endeavor faced turbulence from the start after unveiling its IPO prospectus in late May. The company revealed it had posted net losses in four of the last five years. The company’s financial statements have also been complicated by its recent string of acquisitions that left Endeavor shouldering some $4.6 billion in debt.

The underlying issue of a lack of free cash flow, significant leverage and lack of sustained profitability in key divisions left prospective investors wary. Analysts also cautioned investors about the company’s complicated plan to issue four classes of shares. A select group of insiders including Emanuel and chairman Patrick Whitesell were to have received super-voting shares that would allow them to maintain control of the board.

Endeavor’s IPO plan also ran head-first into the WGA’s aggressive campaign to ban talent agencies from collecting packaging fees on TV series and movies and to bar agencies from having corporate ties to production entities. WME has been the industry leader in TV packaging, given its once-formidable roster of writers and showrunners.

The guild issued a statement on Thursday taking credit for the demise of the offering. “Reports that the Endeavor IPO has been withdrawn show that investors didn’t buy the company’s conflicted business practices,” a WGA spokesperson said.

Endeavor has sought to diversify its operations with the launch of the Endeavor Content production, distribution and program sales arm. That effort was made possible by Endeavor’s 2014 acquisition of sports powerhouse IMG. IMG had production and sales infrastructure around the world to handle the hundreds of sporting events it produces ever year. After Endeavor took over IMG, that infrastructure was expanded to incorporate sales of entertainment and documentary fare.

The WGA’s effort to reform the rules governing how talent agents represent guild members was fueled in part by Endeavor’s growth ambitions. The guild took aim at Endeavor’s IPO by pointing out to investors that WME has lost 1,400 writer clients since April, when the impasse between the guild and talent agencies led to more than 7,000 WGA members firing their agents en masse.

Dave McNary contributed to this story.