Industry Noize: WME Bets Big On IMG

William Morris Endeavor is reportedly going to close a $2.45 billion financing deal May 1 to fund its pending purchase of sports marketing giant IMG, and at least one Hollywood blogger claims to have received a summary of the pro forma being used to raise the cash – and speculates an IPO could be next.

Sharon Waxman of The Wrap claims it obtained a copy of the summary, which reports private equity firm and WME investor Silver Lake Partners is now a 50 percent owner – meaning its stake has been increased 19 percent from the 31 percent reported two years ago.

WME owns 47 percent and Abu Dhabi investment fund Mubadala owns the remaining 3 percent, according to The Wrap.

Despite the investment, co-CEOs Ari Emanuel and Patrick Whitesell retain corporate control of the company for up to 10 years, according to the report.

The leaked pro forma includes a peek behind the curtain not often seen in the agency business. According to the document, WME’s agency business alone totaled $365 million in revenue and $76 million of EBITDA – earnings before interest and taxes – in 2013.

Music accounted for $88 million. Total revenue was $513 million with $97 million of EBITDA in the same period. The Wrap estimates that client representation “will be only 14 percent of WME’s revenue, confirming what we know about the agency’s evolving business.”

While the deal for IMG creates the largest agency in the world, WME will also be saddled with an equally impressive amount of debt, according to The Wrap. The combined companies will “look to cut $151 million in cost, both by laying off personnel and through cost savings on physical facilities, consolidating vendors and optimizing production costs,” according to the blog.

The pro forma reportedly includes expected 2014 revenue of $2.1 billion, with EBITDA of $448 million. It also reports WME’s enterprise value is $1.14 billion.

WME currently carries a reported $119 million in debt, and The Wrap describes the combined company as “severely leveraged, servicing $2.4 billion debt.”

This is where the IPO chatter comes in. Unnamed sources, which The Wrap identifies only as “two individuals with knowledge of the deal,” told it that WME “will probably decide” to go public with an IPO to service the debt.

“They have so much debt, that is the only way out of it,” one of the sources told The Wrap. “They can never pay their way out of it through growing the business, so the only way to pay it off is to go public and go public quickly.”

WME isn’t commenting.

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