Endeavour Group (NYSE:EDR), owner of Ultimate Fighting Championship, aka UFC, was the IPO of the week in the US this week, attracting plenty of interest. On day one of trading it hit a high of $28.47, before closing up $1.20 on the offer price.
Endeavour Group shifted 21.3m shares in the run up to the IPO at a price of $24, which was at the top end of the range being asked for by book runners. It will be somewhat of a relief to Endeavour Group CEO Ari Emanuel having previously – sensibly we felt – pulled the previous IPO attempt back in 2019.
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Endeavour Group is more than just UFC and muscly people smacking seven shades out of each other: properties include sports fashion and events company IMG and the talent agency William Morris Endeavour Entertainment. Clients of WME include the likes of Ben Affleck, Matt Damon, Jennifer Garner and Whoopi Goldberg. Investors in Endeavour also get a piece of the action from Professional Bull Riders (recently sponsored by tech firm ProStar Holdings).
Notably, Elon Musk, a friend of Emanuel, is serving as a board director on Endeavour.
“This is a great turn of the page for our company, an amazing new chapter,” Endeavour Group’s president Mark Shapiro told the New York Post yesterday. “It sets the table for an incredible journey that’s still ahead. But you know, as it relates to just today, this is a long game. Stock goes up, stock goes down, you know, our investors aren’t playing for today. They are not playing for next week. They are playing for multiple years of significant growth across the businesses that we are in and we aim to deliver on that.”
If you missed out on the IPO price of $24 and are wondering whether to get in now or sit and wait it out for a few days or weeks, here are some further fun facts on the Endeavour Group share price.
Endeavour Group IPO: why was it originally pulled in 2019?
Let’s start with the IPO: in 2019 Emanuel pulled the IPO as orders were coming in at around the $20 mark. The book runners had been asking for $30-32 but were simply not getting it. This was a major mark down and Emanuel didn’t like it. In hindsight it was the right move. Investors were understandably concerned about the level of debt Endeavour Group was carrying. Now the company is looking to raise $1.7bn to buy out the 49.9% it does not own in UFC, which is a major cash cow.
The pandemic has had its impact too: live events businesses have been taking a pounding in the US in the last 12 months. Endeavour Group reported a net loss of $625m in 2020 and is still carrying a lot of debt (more than $5bn).
Tactically this looks like a sound move for Emanuel, as he gets the IPO away while stock valuations are at record levels and he can ask for a reasonable price from the market despite the debt and despite the pandemic, and despite the fact that there is no guarantee he can get hold of the rest of UFC.
We are cautious on this one. It has a good panoply of US entertainment-focused businesses under its umbrella and Emanuel is not going to stand still by any means. But the debt issue has still not gone away and here at The Armchair Trader that is always a red flag. We also note that, as ever with IPOs, any further rises in price will tempt some shareholders to sell, so we are not expecting anything spectacular here. This is more of a long term bet if you are a fan of the US entertainment sector.