LBO Mоdel – Silver Lаke’s Tаke-Privаte оf Endeavоr (15 points) Setup (9 + 6 = 15 points) On April 2, 2024, Silver Lake announced a $13B take-private of Endeavor Group Holdings (NYSE: EDR) – parent of WME, IMG, On Location and the controlling shareholder of TKO Group (UFC + WWE) – at $27.50 per share; the deal closed in March 2025 and was financed with $5.5B of sponsor equity, a $7.25B term loan (~7.5% pre-tax), and a fully drawn $0.25B revolver (~6.5% pre-tax). For tractability, treat this transaction as a single-firm LBO with the financing stack above and total enterprise consideration of $13.0 billion (we abstract from the TKO public stake, a separate $3B margin loan, and pre-existing facilities) that closed in late 2024 (early 2025). Operating projections (millions of USD) Historical anchor (FY2024 10-K, continuing operations): 2022A 2023A 2024A 2024 Normalized Revenue 5,008 5,491 7,111 7,111 YoY growth – +9.6% +29.5% – Adj. EBITDA 1,107 1,141 1,316 ~1,767 EBITDA margin 22.1% 20.8% 18.5% 24.9% The 2024 reported EBITDA is depressed by two unusual items: a $375M UFC antitrust settlement and $76M of EE&R impairments – backing those out gives a normalized baseline of ~$1,767M (24.9% margin). The 2024 revenue jump is largely inorganic – WWE was acquired Sept 2023, so 2024 was the first full year of consolidation; underlying UFC organic growth was ~+8% per the MD&A. Forward projections. Silver Lake’s underwriting – and ours, here – combines four drivers: (i) the WWE-Netflix Raw deal that started January 2025 (~$500M/yr incremental over 10 years), (ii) the UFC media-rights renewal as the current ESPN deal expires end-2025 (expected to step up materially in 2026), (iii) Silver Lake’s bolt-on acquisition platform thesis, and (iv) modest margin expansion from operating discipline post-take-private and a richer mix shift toward owned-IP (UFC/WWE) revenue. We model: 2025E 2026E 2027E 2028E Revenue 7,600 8,200 8,800 9,400 YoY growth +6.9% +7.9% +7.3% +6.8% EBITDA 1,670 1,845 2,025 2,210 EBITDA margin 22.0% 22.5% 23.0% 23.5% 2025E 2026E 2027E 2028E D&A 575 600 625 650 Capex (~3% of revenue) 230 245 265 280 Implied four-year revenue CAGR 7.2% and EBITDA CAGR 7.3% (margins expand~50 bps/yr from a starting point in line with the 2022–2023 historical average of ~21–22%). Other Inputs Parameter Value Tax rate (US federal, marginal & average) 21% Unlevered cost of capital (kA) 11.5% Pre-tax cost of term loan (kTL) 7.5% Pre-tax cost of revolver (kRC) 6.5% Acquisition price (total, end-2024) $13,000M Sponsor equity check $5,500M Term loan at close $7,250M Revolver drawn at close $250M Holding period 4 years Exit at end-2028 at 9.0× LTM EBITDA Cash sweep order Revolver first, then term loan Working capital change Assume zero The key numbers are given to you in the sheet LBO Model of lbo-model-student.xlsx. Unlevered free cash flows and unlevered firm value (given) To keep the focus on the LBO mechanics, the unlevered side has been worked out for you. Using Unlevered FCF = (EBITDA − D&A)(1 − t) + D&A − Capex and adding the exit EV in 2028, then discounting at kA = 11.5%, you obtain: ($M) 2025 2026 2027 2028 Unlevered FCF 1,210.05 1,338.55 1,466.00 1,602.40 + Exit EV (= 9.0× EBITDA2028) - - - 19,890.00 Total unlevered cash flow 1,210.05 1,338.55 1,466.00 Q11.JPGTake VU = $17,125M and the unlevered FCFs above as given inputs in everything that follows. Part (a) – Levered Firm Value (9 points) Sweeping all FCF first to the revolver, then to the term loan: (i) Build the debt schedule for years 2025–2028 (opening/closing balances, interest, repayments, and the year-by-year tax shield on each facility). (ii) Compute the PV of debt tax shields, discounting each facility’s shields at its own pre-tax cost of debt. (iii) Compute the levered firm value VL via APV, and report the implied deal NPV at the $13.0B purchase price. Part (b) – Equity proceeds and Sponsor Returns (6 points) (i) Compute the equity proceeds at exit (residual claim after repaying the year-end 2028 debt at the 9.0× exit multiple). (ii) Write down Silver Lake’s equity cash-flow timeline and report the sponsor’s equity IRR and MOIC. (iii) Identify and quantify the main drivers of the leveraged return (EBITDA growth, multiple expansion, debt paydown, etc.).
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