Endeavor: investors should beware Silver Lake’s talented negotiators

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Ari Emanuel’s Endeavor Group, the sprawling entertainment conglomerate, may soon go private. One might ask why it went public at all. Endeavor said in a statement late on Wednesday that it is considering “strategic alternatives”. Its largest shareholder, Silver Lake, announced it plans to lead a buyout. Endeavor’s share price has fallen about a quarter from its April 2021 initial public offering price.

This listing should have happened years before but was repeatedly delayed, partly due to the pandemic. The belated IPO pitch highlighted Endeavor’s growing dominance in multiple areas of media and entertainment: global sports, live events and talent representation.

But even that simple business message proved too hopeful. Public investors did not take to its unfriendly corporate structure. Silver Lake own well over half of Endeavor’s economic shares. Along with insiders like Emanuel, Silver Lake control 90 per cent of its voting power through three different share classes. It has not helped that Endeavor’s “adjusted ebitda” includes such add-backs as stock-based pay.

Earlier this year, Endeavor spun off its mixed martial arts business, UFC, and merged it with pro wrestling rival, WWE. That has hit the mat, too. Since the separation in September, shares in that company have lost a fifth. Endeavor owns half.

Meanwhile, France’s Pinault family acquired talent agency CAA for $7bn. Analysts estimated the valuation at 13 times annual ebitda, higher than the figure for Endeavor.

Endeavor shareholders should gird themselves for a fight with the sharp-elbowed team of Silver Lake and Emanuel. In 2013, Silver Lake helped Michael Dell take his technology company private for a song. They later shared tens of billions in profits.

Emanuel and Silver Lake may have similar designs at Endeavor. The shares jumped on Thursday to an enterprise value of $14bn. Other shareholders should study previous examples of canny negotiation and avoid selling out cheaply.