Ari Emanuel baits investors to swim with sharks

Sharknado. Endeavor boss Ari Emanuel hasn’t stopped moving. After taking his entertainment group public in 2021, then separating out crown-jewel sports asset Ultimate Fighting Championship, he has now sealed a $13 billion take-private transaction. The trouble is, the deal looks like chum for sharp-toothed buyer Silver Lake.

The $27.50 per share all-cash offer, unveiled Tuesday, represents a 55% uplift from Endeavor’s stock price on Oct. 25. That was the day the company behind sports gambling outfit OpenBet and the talent agency representing Matt Damon announced a strategic review. The price might look chunky: Including debt, it comes in at nearly 14 times last year’s EBITDA of $1.2 billion – similar to the multiple that rival group CAA fetched in a transaction involving French billionaire François-Henri Pinault in September.

But look closer, and there’s blood in the water. Endeavor and Silver Lake bill this as the largest private equity-led take-private buyout in over a decade. They get there by adding in the value of Endeavor’s controlling stake in TKO, home of the merged UFC and World Wrestling Entertainment, bringing the supposed headline figure to $25 billion.

The deal is likely nowhere near that large. Assuming Silver Lake and management roll over their stakes in Endeavor, Egon Durban’s firm only needs around $6.7 billion to pay out to independent investors, Breakingviews calculates. But Durban and Emanuel are right about one thing: the company’s equity value does not seem to reflect the worth of TKO.

This wrinkle stems from the late-2023 deal that formed TKO by separating and merging the UFC with WWE, leaving behind a grab bag of assets at Endeavor including a talent agency, professional bull-riding league and art fair. Under the confusing arrangement, Endeavor’s share price sagged. Prior to exploring alternatives, the company’s market value was about $8 billion – barely more than the then-roughly $7 billion value of its TKO stake.

Silver Lake and Emanuel can benefit from that aberration. Since it consolidates results from TKO, Endeavor’s profit is set to be much higher this year; the take-private represents a mere 9 times multiple of expected 2024 EBITDA, according to LSEG.

A special committee of directors approved the deal, but Silver Lake – which holds voting control – rebuffed a request for a minority vote, Reuters reported. Such votes have been contentious for the buyout shop in the past, like when Carl Icahn agitated for more money when the firm helped take computer-maker Dell private in 2013. This time, investors are left to swim with the sharks.