A Hollywood story of surviving the pandemic

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The Weekend Pitch

April 4, 2021

Hey, everybody. This is Alexander Davis, checking in from California to share a Hollywood story with you. The only question is whether it will have a happy ending. So let's get right to it. After all, you've got a holiday weekend to savor. You can reach me at alec.davis@pitchbook.com.

UFC opponents face off in a recent event in Las Vegas. (Handout/Getty Images)

A glimpse inside Hollywood's playbook for surviving the pandemic

What do Elon Musk, Charlie Chaplin, Serena Williams and private equity giant Silver Lake have in common?

They're in the cast of characters whose star power (past and present) has aligned behind Endeavor, the $3.5 billion majority owner of the Ultimate Fighting Championship and a famed talent agency and operator of live events.

In 2019, the company, led by Hollywood mogul Ari Emanuel, shelved its $400 million IPO in the face of lackluster investor interest. Its last known valuation stood at $6.3 billion in 2018, according to PitchBook data.

Now Endeavor is back in the hunt for a ticket to Wall Street. The company just relaunched its bid to go public, trumpeting its ability to rebound from the pandemic via a digital entertainment portfolio spanning mixed martial arts, bull riding and a vast A-list of licensing and marketing clients.

Besides being a new pitch to investors, the company's prospectus is also something of a playbook for how one of Hollywood's top power brokers survived the biggest health and economic crisis in modern times.

In 2009, Endeavor merged with the century-old William Morris talent agency, which once represented the likes of Charlie Chaplin and Marilyn Monroe. Today, the group, dubbed WME, works on behalf of sports giants such as Serena Williams. It has also financed hit shows like "Hamilton."

The new prospectus portrays a company that, despite the havoc wreaked by the pandemic, is well positioned to thrive as normalcy returns to the vast webs of business that crisscross the worlds of entertainment, marketing and cultural events.

Endeavor has lately seen growing losses and falling sales—a trend accelerated by the pandemic. It lost $625 million on revenue of $3.48 billion in 2020, versus a loss of $530.7 million on revenue of $4.57 billion a year earlier.

Much is at stake for big investors like Silver Lake, which backed Endeavor starting in 2012. Other top shareholders include Canada Pension Plan Investment Board and Singapore's sovereign wealth fund.

Taking the long view, Endeavor is making a bet that the increase in consumer adoption of digital entertainment, sports and social media will continue growing long after we've all tossed our masks in the trash.

Which brings us to Elon Musk. With a certain commander-in-chief banished from Twitter, Musk is arguably the Western world's single largest (if not brashest) gadfly on the social media platform. Now Musk has been named to the board of Endeavor in the runup to its IPO.

It isn't hard to see how big personalities like Musk could be at ease with Endeavor.

The company owns a digital marketing unit that goes by the immodest name of 160over90. If that makes you think about your blood pressure rising, that's precisely the idea. The agency boasts of doing campaigns that spark a reaction in people—160/90 is the blood pressure level "when your heart begins to palpitate and your hands begin to sweat," their website says.

It's a fitting name, considering that Endeavor also controls the UFC, the gladiator-like, mixed martial-arts spectacle that it has owned since 2016. Endeavor disclosed in its latest filing it plans to acquire the 49.9% of the UFC that it doesn't already own, pending the IPO's completion.

Perhaps watching a showdown of two burly men poised to dismember each other isn't your thing. But it is for some 625 million UFC fans out there, according to Endeavor's prospectus, and its fights reach a broadcast audience of up to 1 billion global households through streaming subscription services and pay-per-view channels. Admission in person (and the action itself) isn't for the faint-hearted sports fan: Cheap seats for one upcoming event will set you back $1,250 (including food and other perks) and the prices rise as high as $3,500 near ringside.

Along with the UFC, the company owns PBR, a Colorado-based professional bull riding circuit.

After the lockdowns began last year, the UFC and PBR together were in the first wave of pro sports getting back in action, adopting early health protocols to make that possible. The company leveraged that experience to help resume film and TV productions safely.

But Endeavor also says that it was hit hard by the shutdown and that it used that period to take cost-cutting measures such as deferring rent payments, which it believes could pay off in future improved margins and cash flow.

Pandemic scars aside, Endeavor is bankrolled by blue-chip investors and features star clients. Soon it will have a captain of the electric car industry on its board. Its delayed journey to Wall Street has some makings worthy of a Hollywood thriller. Time will tell whether investors deem it a hit or a flop.

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Quote/Unquote

"It doesn't sound too sexy but it's a really big market."

—Brent Constantz, CEO of Blue Planet, a startup using carbon capture to create synthetic limestone.

Deal flow

SoftBank-backed Compass struggled this week to get its bearings while heading to Wall Street.

In its NYSE debut on Thursday, the real estate tech company's stock closed up nearly 12%, but not before the startup raised far less capital than previously planned.

The company had initially intended to raise up to $936 million in the deal. But it ended up taking in $450 million after slashing the offering size and price target hours before finalizing the sale on Wednesday.

At Thursday's closing stock price of $20.15, Compass was worth $9.8 billion on a fully diluted basis. It was valued at $6.5 billion in a private round in 2019, according to PitchBook data.

SoftBank owned a stake worth around $2.5 billion at the stock's closing price. Compass is the latest Vision Fund-backed property tech startup to head to the public markets, following SPAC merger deals for WeWork, Opendoor and View.

Did you know ...

... That the pandemic supercharged investor interest in biotech & pharma startups, which collectively raised $28.5 billion from VCs in 2020? Read more in our recent analyst note on the biotech and pharma industry.

Datapoints

(Yulia Reznikov/Getty Images)

The US private equity industry has amassed a record amount of dry powder after a decade-long fundraising surge. But investors had trouble putting all that cash to work in the first quarter, at least when it came to billion-dollar deals.

During the first three months of 2021, US private equity firms completed just 14 deals with a purchase price of $1 billion or more, according to PitchBook data. That marked a 30% drop compared to the same period a year earlier and a 55% drop from the fourth quarter of 2020.
The largest completed buyout came in February when national security specialist Peraton, a portfolio company of New York-based PE firm Veritas Capital, acquired the federal IT and mission support business of defense contractor Northrop Grumman for $3.4 billion in cash.
Peraton also agreed in January to acquire Perspecta, a US government services provider, in a $7.1 billion deal, but that take-private transaction has yet to close.

Recommended reads

When a container ship became lodged in the Suez Canal last month, it cost the global economy billions of dollars. Unfortunately, maritime mishaps are more common than one might think. [The Atlantic]

Hamilton Lane decided to poke fun at Oxford professor and PE critic Ludovic Phalippou in its 2021 market overview report. Now Phalippou is threatening legal action against the asset manager. [The Philadelphia Enquirer]

Major League Baseball kicked off its 2021 season on Thursday, welcoming back fans in a limited capacity. But as the league tries to regain its financial footing, a messy fight between the players union and owners looms large. [Sportico]

Rapper Lil Nas X made headlines this past week after releasing a demonic pair of Nike sneakers. Just one problem. Lil Nas X didn't have the footwear giant's permission. [The Wall Street Journal]

Many SPACs have seen their stock prices dwindle post-merger. The answer to those struggles might be to keep investors locked in longer. [The New York Times]

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A Hollywood story of surviving the pandemic

Quote/Unquote

Deal flow

Did you know ...

Datapoints

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