Endeavor, the parent company of WME, dropped its bid to go public in September 2019. At the time, the company said it would continue to assess market conditions as it looked for a better opportunity. That time has come, according to Wall Street watchers.
Despite the pandemic, the stock market is close to all time highs. Wall Street is also seeing a record number of public listings, and hundreds of SPACs — publicly listed acquisition vehicles — are eager to merge with companies looking to go public.
“Certainly now is very favorable,” said Jay Ritter, an IPO expert at the University of Florida. “The stock market is forward looking, and I think the consensus is the U.S. and the U.K. are rapidly getting COVID under control.”
A lot has happened in the 18 months since Endeavor’s last IPO bid, which was pulled at the 11th hour amid lukewarm interest. The pandemic has hammered sports and live entertainment revenue. And after a protracted legal battle with the Writers Guild of America, Endeavor will be forced to sell off 80% of its Endeavor Content production operation within the next year because of the new rules governing how WME and other agencies can represent guild members.
Nevertheless, the company is gearing up to take another run at going public in some form, or possibly raising more funding through a private equity transaction. As Sportico reported last week, Endeavor has filed the confidential paperwork with the Securities and Exchange Commission that is typically a prelude to an IPO.
The New York Post reported Thursday that the company could file for an IPO early next month, and may also try to sweeten the deal by buying out the minority owners of the Ultimate Fighting Championship before the public sale.
But it’s possible that it could look into listing via a SPAC merger.
When it was preparing to go public in the fall of 2019, Endeavor was looking to raise about $400 million at a valuation around $6.5 billion. Many SPAC deals fall within that range, especially when paired with a private equity investment. A SPAC could avoid some of the delay and the headaches that come with an IPO, such as uncertainty about valuation.
“In a regular-way IPO, the process takes months, and you don’t find out your valuation or capital raise until the day the IPO prices,” said Benjamin Kwasnick, founder of SPAC Research. “In a SPAC deal, you know your valuation and minimum capital raise the moment you sign the deal.”
In its first go-round, Endeavor pitched itself as a “platform” with global scale. That sort of buzzy language — reminiscent of many tech IPOs — did not persuade investors to price the company at the level it was seeking. Endeavor is fundamentally a professional services business with some media assets thrown in. Investors also tend to look for recent growth, and the pandemic will not have helped in that regard.
“They’ve got a demonstrated viable business, but a slow growth business overall,” Ritter said. “There’s no way they’re going to be able to sell the company with a story to investors of, ‘Suddenly, we’re going to be growing at 50% a year organically.'”
A SPAC deal might allow the company to lean more heavily on future projections than past results.
“A SPAC deal is an M&A transaction. The targets are allowed to market themselves based on projected operating results in a way that regular IPOs can’t,” Kwasnick said. “A go-public transaction that would be supported by (private) investors might be an easier route to fundraising and public listing.”
Ritter said that 2021 is already shaping up to be the hottest year for IPOs since 2000. He has tallied 436 SPACs that are looking for a merger target, with a combined $141 billion of “dry powder” to work with. And while he said Endeavor fits the profile of a traditional IPO, a SPAC is still within the realm of possibility.
“It’s possible that some SPAC will pony up and pay an attractive enough price to make that an attractive exit,” Ritter said.