Will Silver Lake Acquire Endeavor? What Is TKO Group Worth?
Silver Lake likely wants TKO Group (ticker: TKO) to be part of an Endeavor (ticker: EDR) acquisition. The question is, what do you pay for TKO Group? TKO is a cash machine with EBITDA margin upside, yet 2024 brings uncertainty to the live events business. The good news is that Endeavor founder Ari Emanuel and Silver Lake Co-CEO Egon Durban have been partners for over a decade. Relationships get M&A deals done, not spreadsheets.
PE firm Silver Lake controls Endeavor Group (EDR) and is considering taking the firm private once again. My guess is that Silver Lake also wants TKO group as part of the deal (TKO is majority-owned by EDR and is comprised of the UFC and WWE).
The question is, what do you pay for TKO? The stock is down 29% YTD. The UFC is a cash machine with 60% Adj. EBITDA margins. The WWE is no slouch with a 42% Adj. EBITDA margin. I believe that EDR will lift WWE’s Adj. EBITDA margin above 50% over the next 18 months.
Silver Lake is not stupid. They know that the live events business for both the UFC and WWE could take a hit next year if the macro environment slows (which is likely). So again, what do you pay for TKO? What EBITDA multiple do you pay knowing there is margin lift?
Silver Lake will not give TKO full credit for future margin lift. Instead, Silver Lake will likely create an incentive-laden compensation package for EDR and TKO management (especially the former as EDR founder & CEO Ari Emanuel is also CEO of TKO), where compensation is paid out should certain EBITDA thresholds be met.
This is going to be a difficult deal to close. My guess is that Silver Lake may want to see what happens to TKO’s business after the first of the year. We may be looking at a March / April 2024 deal announcement date if there is to be a deal.
Disney’s ESPN would be the ideal buyer for EDR, however ESPN has its hands full at the moment.