Silver Lake’s take-private of Endeavor announced in April 2024 is set to be the largest deal in the Media & Entertainment sector, which indeed is a strong optimistic signal for dealmaking amidst uncertainty surrounding the M&A market in the past few years. The deal comes after Endeavor failed to gain enthusiasm among investors, as its stock price is now barely break-even three years following its public listing. Indeed, this major transaction raises the question as to whether the recently-declining trend of the M&A market is finally set to revert, potentially fueled by increased PE activity, or if this was merely the result of a transaction perfectly timed to capitalize on Endeavor’s poor valuation in the stock market.
Overview of the Transaction
Silver Lake’s take private of Endeavor set to conclude in the first quarter of 2025 will make this deal the largest private equity sponsor public-to-private investment transaction in over a decade, and the largest ever in the media and entertainment sector. The deal values Endeavor at $13 billion and, when consolidating all of TKO’s operations into Endeavor, yields a valuation which is twice as large. This deal comes about just months after Endeavor announced a ‘strategic review’ of its assets in an effort to improve both the performance and market valuation of the company.
This take-private comes 3 years after Endeavor’s $7.6bn IPO and while the after-market performance has been lacklustre due to issues with the business, Silver Lake has continued to invest and holds 71% of the voting shares in Endeavor. The deal will involve Silver Lake purchasing the remaining shares. However, this deal will not include the privatisation of Endeavor’s subsidiary TKO which it has a 51% majority stake in and consists of the $21bn merged UFC and WWE businesses which occurred in 2023. Endeavor’s other businesses also include a talent agency which represents celebrities such as Dwayne Johnson and Ben Affleck, the Professional Bull Riding League (PBR) and one that operates events like the New York Fashion Week and Hyde Park Winter Wonderland.
While Wall Street’s valuation of the company has appeared to be declining its financials on the whole look positive with Endeavor becoming profitable in 2022 and the bottom line set to nearly double by 2026 according to analysts’ estimates. Endeavor is in a weight class of its own compared to its competitors like the parent company of TicketMaster, Live Nation Entertainment, with the former having a profit margin of 50%+ more than doubling the latter’s 22% despite the $8bn difference in market cap. It can even be compared to streaming service giants and other big entertainment groups like Paramount. Endeavor has been able to achieve this through strategic mergers and acquisitions totalling 20+ deals since 2014, most notably the acquisition of sports companies like UFC and PBR, but also On Location which hosts the Super Bowl and Coachella and the marketing business 160over90 which positioned Endeavor to be a leader in the transition of traditional media marketing budgets to digital platforms. This has allowed for the realisation of top line and cost synergies for Endeavor and access to the UFC’s 1 billion household global audience.
Exhibit 1 - Endeavor: A Diversified Player
Silver Lake is an American private equity firm with an AUM of $102bn and is approaching the top 10 biggest PE firms in the world. Its notable holdings include Class B and C shares of Dell which it took private for $24bn in a similar fashion in 2013. It also has smaller stakes in companies like Unity Software, Madison Square Garden Sports, Software AG, Alibaba and Broadcom. Endeavour is now nearly 25% of Silver Lake’s portfolio which represents a significant commitment and interest in the growth of Endeavor that dates back to the initial investment in Endeavor in 2012 when a 31.25% minority stake was bought by Silverlake which was then valued at around $250mn.
The Endeavor group was founded 3 years before that investment by merging the William Morris Agency and Endeavor Talent Agency, the latter being created in 1995 and became the fastest-growing agency in Hollywood. This merger created a new company called William Morris Endeavor (WME) that later when in 2013 merged with IMG was rebranded as Endeavor.
Exhibit 2 – Endeavor: Main Financials
Silver Lake’s interest has continued through Endeavor’s $2.4bn acquisition of IMG in 2013, its subsequent IPO on the New York Stock Exchange in 2021 and Silver Lake also supported the merger between its UFC and WWE businesses in 2023. Both companies have had a longstanding and successful partnership, marked by more than $3.5 billion of direct investment across six distinct transactions over 12 years. Silver Lake has also seen significant returns through this partnership growing Endeavor’s revenues nearly twentyfold, from $350mn in 2012 to $6bn in 2023.
Silver Lake’s interest has continued through Endeavor’s $2.4bn acquisition of IMG in 2013, its subsequent IPO on the New York Stock Exchange in 2021 and Silver Lake also supported the merger between its UFC and WWE businesses in 2023. Both companies have had a longstanding and successful partnership, marked by more than $3.5 billion of direct investment across six distinct transactions over 12 years. Silver Lake has also seen significant returns through this partnership growing Endeavor’s revenues nearly twentyfold, from $350mn in 2012 to $6bn in 2023.
Financials, Valuation and Implied Premium in the Transaction
This deal highlights the increased amount of committed, but unallocated capital private equity companies hold after a dry 2023. Furthermore, it is built on a string of investments Silver Lake has made in Endeavor, from its initial 2012 investment in William Morris Endeavor (WME) to Endeavor’s 2021 initial public offering. The financial advisor for the target was Centerview Partners while on the acquirer side there was a consortium among Barclays, Bank of America, Deutsche Bank, Goldman Sachs, J.P. Morgan, Morgan Stanley and RBC Capital Markets.
As part of the deal, Silver Lake agreed to pay $27.50 per share representing an 8.74% premium one day prior to the announcement, to acquire 89.35% of Endeavor Group, the remaining already being owned by the private equity company. Its shares went up 2.3% to $25.87 by the end of the announcement date while currently the upward trend continued, Endeavor shares trading at $26.50. Post-completion, Endeavor Group will no longer be listed on any public market. As mentioned above, the only exception will be TKO Group, and Endeavor subsidiary resulted after the merger between the Ultimate Fighting Championship (UFC) and World Wrestling Entertainment (WWE), which will remain publicly traded.
This new era as a private company for Endeavor has hope of significant development, after its ambitious growth story failed to gain traction on Wall Street. The decision of going private was well regarded by investors, stock prices increasing by almost 50% – reflecting the bidding premium by the Silicon Valley-based PE house – since they disclosed their intentions in October 2023, even though Endeavour revenues showed a significantly smaller growth, namely 13%. However, according to street estimates, next years’ forecasts are remarkably ambitious, with an anticipated revenue growth of over 30% which can be attributed to both the rebound in the entertainment market and the strategies that Silver Lake will pursue after the company's privatization next year. As mentioned before, during the last years Endeavor did not show a spectacular revenue growth, but rather a consistent and organic one with a 5 years CAGR of 10.5%. On the other hand, its EBITDA and Net Operating Cash Flows have a 28.2% respectively 26.6% CAGR over the last year, highlighting increased operational efficiency among group companies, corresponding to the period when Silver Lake began actively investing.
Currently, Endeavor Group’s Enterprise Value is estimated to be approximately $16.1bn, its equity value at roughly $13bn, with the difference given by Net Financial Position. Part of the transaction was financed by capital offered by partnering investors including Mubadala Investment Company, Lexington Partners, and Goldman Sachs Asset Management. Endeavor current market capitalization stands at $12.3bn and its main competitors in the media and entertainment industry are Warner Music Group and Live Nation Entertainment. Current asset-side trading multiples show that Endeavor was trading at a premium compared to its competitors, which might suggest an optimistic growth outlook. The firm has an Enterprise Value/Sales of 2.6x, which is still slightly lower than Warner Music Group’s 3.3x, however significantly higher than Live Nation Entertainment’s 1.0x whose ability to generate sales seem impressive. The same conclusion can be drawn by looking at the Enterprise Value/EBITDA multiple, namely 16.6x for Endeavor, which in this case is higher than Warner Music Group’s 16.0x and Live Nation Entertainment’s 13.7x even after the significant increase in Endeavor’s EBITDA over the last 5 years. Moving to equity-side multiples it can be noticed that investors have been discounting heavily Endeavor in the market. Its Price/Earnings ratio is 23.1x, which is significantly lower than the values recorded by its main competitors: 65.6x for Live Nation Entertainment and 37.2x for Warner Music Group, although Endeavor’s Price/Cash Flow multiple is more in line with the competitors, namely 20.2x compared to 15.3x for Live Nation Entertainment and 22.2x for Warner Music Group.
Exhibit 3 - Trading Comps
Over the last few years, there have been several transactions with a focus on sports media and entertainment, although none of them being as large and significant as the Endeavor acquisition. The most notable examples are the acquisition of Broadcast Music INC by New Mountain Capital and CapitalG Management worth $1.3bn, of Hornets Basketball (previously owned by Michael Jordan) for $2.9bn and of Phoenix Suns by a group of individual investors for $4bn.
Media and Entertainment PE Activity: Dry Powder or Upcoming Surge?
Silver Lake's decision to acquire Endeavor, at a $13 billion equity value, purchasing all of the remaining shares it doesn’t already own at $27.50 each, marks one of this year's most significant private equity transactions.
Endeavour’s take-private deal was largely fueled by its desire to continue making ambitious investments, like TKO, without having to answer to public market shareholders. This desire has largely been shaped by Endeavour’s recognition of the poor reaction on Wall Street to its past acquisition of TKO and sale of a majority stake in Creative Artists agency wherein Endeavor’s share price declined on both occasions. Amidst a backdrop where private equity take-private deal values fell by over 40% last year, Endeavor's move reflects a strategic shift to insulate itself from market pressures and pursue its growth agenda more independently.
Exhibit 4 - Source: BBG News
Since its initial acquisition in 2012, Silver Lake has significantly grown Endeavor's revenue from $350 million to nearly $6 billion today. This substantial historical growth paired with Silverlake’s expertise in take-private transactions further highlights the strength and potential of the partnership, indicating promising prospects for future success.
The media and entertainment industry has been undergoing transformational change, most notably seen through the move from traditional linear TV networks and cable TV to streaming services. Network and Cable TV viewership dropped to a historical low last year whereas streaming services saw a record number of viewers. However, even though streaming services are still peaking in popularity, there has been an industry-wide shift in focus to profitability rather than pursuing the acquisition of new subscribers at all costs.
The recent pressure and trend toward profitability have prompted many companies to unload non-core assets recognizing that they will no longer be as accretive to the business given the continued decline in traditional linear TV. Furthermore, other companies are adapting to this new trend by forming joint ventures or commercial partnerships. A notable example of a strategic alliance is the deal between ESPN and Penn National Gaming wherein ESPN will receive $2 billion over the next 10 years to allow Penn to rebrand its gambling app as ESPN Bet.
Disney's recent acquisition of Comcast's stake in Hulu for about $8.61 billion is another standout example of strategic maneuvering in response to the changing dynamics of the streaming industry. This consolidation, which has resulted in Disney’s outright ownership of Hulu, aligns with Disney's broader streaming strategy, positioning the company as a dominant player with the ownership of two different streaming platforms. The merger, officially completed in March 2024, has resulted in a unified streaming app offering separate subscriptions for Hulu and Disney+, alongside bundled offerings.
The media and entertainment industry has been undergoing transformational change, most notably seen through the move from traditional linear TV networks and cable TV to streaming services. Network and Cable TV viewership dropped to a historical low last year whereas streaming services saw a record number of viewers. However, even though streaming services are still peaking in popularity, there has been an industry-wide shift in focus to profitability rather than pursuing the acquisition of new subscribers at all costs.
The recent pressure and trend toward profitability have prompted many companies to unload non-core assets recognizing that they will no longer be as accretive to the business given the continued decline in traditional linear TV. Furthermore, other companies are adapting to this new trend by forming joint ventures or commercial partnerships. A notable example of a strategic alliance is the deal between ESPN and Penn National Gaming wherein ESPN will receive $2 billion over the next 10 years to allow Penn to rebrand its gambling app as ESPN Bet.
Disney's recent acquisition of Comcast's stake in Hulu for about $8.61 billion is another standout example of strategic maneuvering in response to the changing dynamics of the streaming industry. This consolidation, which has resulted in Disney’s outright ownership of Hulu, aligns with Disney's broader streaming strategy, positioning the company as a dominant player with the ownership of two different streaming platforms. The merger, officially completed in March 2024, has resulted in a unified streaming app offering separate subscriptions for Hulu and Disney+, alongside bundled offerings.
Final Remarks
Looking ahead to the rest of 2024, an upsurge in mergers and acquisitions is anticipated, with major players in the industry (surveyed by Bain) indicating an intention to either maintain or increase deal activity. While this is indeed true for strategic buyers, improving macroeconomic conditions leading to monetary easing by the worlds’ Central Banks should also result in increased buyouts of large PE houses, which would naturally benefit from the lower borrowing costs. As uncertainty still prevails in the US economy, which is now pricing in three rate cuts for this year, M&A activity might remain cautious in the very short term, but the growing optimism among dealmakers is indeed a signal of the recovery of the market in H2 of 2024.
By Alexander Lockhart, Laurian David Pop, Kabir Wali
Sources
Bloomberg News
Reuters
Financial Times
WSJ
FactSet
Capital IQ
McKinsey – “PE and Principal Investors: Private Markets Annual Review”
Bain & Co – “Media M&A Report”
Silverlake.com – “Silver Lake to take Endeavor Private”
Retuers – “Silver Lake take Endeavor private equity deal 13 bn”
BBG – “Private Equity firms begin 2024 in sell now buy later mode”
Forbes – “Deals that shook up the media and entertainment space in 2023…”