Ari Emanuel’s Endeavor flopped on the stock market. Now it’s probably going private again

Two years ago, Ari Emanuel's Endeavor entertainment conglomerate debuted on the public market, becoming the first Hollywood talent agency to do so.

The initial public offering was seen as a test of the brash Hollywood superagent's long-term vision for the Beverly Hills firm: combining live events businesses such as Professional bull ridersNew York Fashion Week and London's Frieze art fair with talent representation giant WME would create an “Endeavor flywheel.”

But investors have been skeptical of the central thesis that Endeavor's value was greater than the sum of its seemingly disparate parts. Late last month, Endeavor signaled that it might throw in the towel on being a publicly traded company.

On October 25, the company told investors it was exploring its strategic optionswhich is usually a sign that a company is being put up for sale.

"Given the continued dislocation between Endeavor's public market value and the intrinsic value of Endeavor's underlying assets, we believe that an evaluation of strategic alternatives is a prudent approach to ensure we are maximizing value for our shareholders," Emanuel said in a statement.

In other words, executives and investors have been frustrated by the company's low stock price, despite Endeavor's profitability and revenue growth. As of the day of the company's announcement, Endeavor's stock price had fallen to $17.72 per share, down 30% from when it closed at $25.20 in its opening day. The stock has underperformed the S&P 500 this year.

"What Ari has created is an entertainment conglomerate and investors don't see how the parts fit together, especially the synergies between them," said Lloyd Greif, a Los Angeles-based investment banker who follows the entertainment business. "They don't understand the vision or the strategy."

Shortly after Endeavor's announcement, a possible outcome emerged.

Its largest shareholder, private equity firm Silver Lake, said it wanted to take Endeavor private. Yesilver lake said in a statement that he “strongly believes in the Endeavor business” and “is not interested in selling his shares in Endeavor to a third party or accepting offers for assets that are part of Endeavor.”

The conflicting press releases seemed unconventional to some industry observers and raised questions about whether the two companies were on the same page.

Some interpreted Silver Lake's move as a way to discourage potential buyers from coming forward, thereby reducing the risk of a competitive bidding process. Silver Lake, which has been an investor in Endeavor since 2012, owns 71% of the voting shares; therefore, he has enormous influence over Endeavor's future and a significant stake in its success.

"They can give the company a bear hug; the only way someone could take Endeavor away from them would be to outbid, and that is very unlikely since Silver Lake has sent a very clear signal that they want to take Endeavor private," Greif said. .

Endeavor and Silver Lake declined to comment. In its statement, Endeavor said it has not set a deadline for its review process, adding: "There can be no assurance that this process will result in any particular outcome."

The nature and history of Endeavor – and its aggressive CEO, Emanuel – are anything but conventional.

Emanuel founded Endeavor when he and three other agents left ICM to start their own agency in 1995. A security guard saw a assistant taking files and ICM leaders realized that the four agents' documents had disappeared. The president of ICM threatened to sue. Emanuel responded: “Listen, I don't work for you. Do what you want".

In 2009, Endeavor merged with William Morris Agency become WME. Later he bought other companies, including the mixed martial arts league. Ultimate Fighting Championshipturning it into a diversified and expansive entertainment company.

Endeavor planned to launch a IPO in 2019 but then delayed it due to market conditions. During the COVID-19 pandemic, which affected entertainment businesses, including agencies and sports leagues, there were rumors that Endeavor could declare bankruptcy or be sold for parts, although those rumors never amounted to anything. Endeavor finally went public in 2021.

To succeed in the public market, Endeavor needed to convince investors that bringing all of these entertainment and live events-related companies under one group would create a virtuous cycle of top-tier talent, brands and events that was more valuable. than its pieces. .

He would also have to overcome doubts about the talent business, which is notoriously unpredictable, something Wall Street usually doesn't like. Hollywood agencies make money when clients get work, and their bottom line suffers when a star defects to another agency, which happens all the time. To adapt to that reality, agencies have diversified their businesses beyond film and television stars to also represent brands, influencers and sports stars. WME clients include Dwayne Johnson and Oprah Winfrey.

Even Emanuel admitted in a discussion at Bloomberg's Screentime conference last month that “our Endeavor story was a little confusing” for Wall Street.

"There is a strong dislocation between Endeavor's current share price and the sum of the businesses and equity holdings the company owns," said Brandon Ross, an analyst at LightShed Partners. "Without strategic action, there is no prospect of closing this discount."

Endeavor has taken steps to try to boost its stock. In April, it reached an agreement to UFC will merge with World Wrestling Entertainment into a new publicly traded company called TKO. Endeavor has a 51% controlling interest in TKO and Emanuel serves as the company's CEO.

But Endeavor shares continued to fall and TKO's share price has fallen 17% since the company went public on September 12, reflecting the market concern around sports rights as cable companies lose more subscribers to streaming services.

Endeavor said it would not consider selling its stake in TKO as part of its strategic review, but analysts have speculated the company could try to sell other assets if it went private.

There were also hopes of a halo effect after rival Creative Artists Agency's majority stake was sold at a price $7 billion valuation to Artémis, the investment company of the multi-millionaire Pinault family. But that optimism was short-lived.

"The market was pricing Endeavor's non-TKO assets as if they were going bankrupt despite the recent acquisition of CAA at a very high multiple," Ross said.

Emanuel has made no secret of his frustration with his company's valuation. He also hasn't suppressed his sometimes combative nature, a trait typical of high achievers in the fast-paced agency business but less common at other public companies, where executives tend to keep to themselves and stick to bland corporate jargon. In an appearance on Freakonomics Radio, Emanuel unfavorably compared CAA to Walmart.

At the Bloomberg conferencehe personally criticized his competitors and asked CAA co-presidents Bryan Lourd and Kevin Huvane to take a leave of absence following the death of an actor. lawsuit who accused the two officers of discouraging her from reporting a sexual assault. CAA has called the claims unfounded.

"We are worth much more, we have more morale and we have a better business," Emanuel said.

CAA's Lourd responded. "We all know that Ari Emanuel is incredibly performative, erratic and, in my opinion, always selfish, to the detriment not only of his colleagues, but also of his clients... and, most importantly, of his investors," he said Lourd. adding that he was falsely accused in the lawsuit and that he would address it in court.

Prices for both Endeavor and TKO rose after Endeavor announced plans to explore alternatives.

Still, broader entertainment industry issues, including the recently resolved writers' strike and the ongoing actors' strike, continue to hurt Endeavor's business. The double strikes have halted production of scripted films and television for much of this year, at a time when the company is already struggling with the transition to streaming from traditional television. The writers' strike ended at the end of September, but the actors the strike has continued since mid-July.

"It doesn't look like that dark cloud is going to lift off Endeavor anytime soon," Greif said. “They probably feel like the 'Peanuts' character Pig-Pen. “They always walk around with a cloud of dust surrounding the Endeavor that they can’t seem to shake.”

Times staff writer Stacy Perman contributed to this report.