Hollywood's Endeavor eyes IPO, but top investor says to look beyond the glitz

Hollywood entertainment and media company Endeavor is hoping to dazzle investors with the glitz of "Tinsel Town" in its upcoming entry to the public markets.

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The initial public offering (IPO), of the company formerly known as WME-IMG, looks to raise some $600 million and garner a market valuation of $8 billion dollars according to The Hollywood Reporter. Endeavor first filed for an IPO in May and is expected to hit the open market sometime this fall.

Endeavor was founded in 1995 and in 2009 merged with the world-famous William Morris Agency.  In 2013, the company acquired IMG known internationally for owning sporting events and representing athletes and broadcasters.  The Endeavor roster of talent includes Ben Affleck, Charlize Theron, and Martin Scorsese and its properties include the UFC, Miss Universe and the Profesional Bull Riders.

“Why do I want this thing? Where is the growth in this thing? I am not buying, no, not at all," Ross Gerber, President and CEO of Gerber Kawasaki Wealth and Investment Management, told FOX Business, "I look at UFC as a played out asset, is UFC going to be bigger than it is now? No, if anything it is going to get smaller.”

Although its roots are in the talent agency part of Hollywood, Gerber said investors need to look closer at it. Calling the company Endeavor is misleading because the agencies are a small part of the actual business and in a way, it is the best part of the business,” declared Gerber, “The reality is you are buying UFC and a lot of debt that comes with it from these sports-related, over-priced acquisitions.”

Led by CEO Ari Emanuel -- who was the inspiration for Jeremy Piven's high-octane agent character in the HBO series and feature film "Entourage" -- Endeavor, estimates its IPO shares to trade for about $30 - $32 with 19,354,839 shares available bringing the value of the company to about $8 billion.

Endeavor has private equity partners that have been in the stock now for several years.  "They want to try to monetize the growth of the business," Gerber reasoned. "However, they haven’t been profitable in years, we have seen them lose about a hundred million a year."

The filing does not indicate that private equity shareholders Silver Lake and CPPIB are selling its stake.

Endeavor, which plans on using the ticker symbol “EDR,”  reported $551 million in earnings last year.

In its prospectus, Endeavor aims to attract investors with such claims as:

  • Has represented more Oscar and Grammy winners than any other talent agency in 2018
  • Represented more than 60% of the musical headliners of major music festivals in the U.S.
  • Manages the careers of seven of the 10 best-paid models.

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The company has other impressive numbers in their filing. In the first six months of 2019, Endeavor pulled in $2.1 billion in revenue, a big jump from the $1.5 billion from the same time 2018. The company also cut back on losses, according to their filing, from $404.5 million to only $192.6 million in the same time frame.

This story has been updated to reflect the status of Endeavor's private equity partner holdings.