TKO Group downgraded at Benchmark on concern about acquisition strategy

Benchmark downgraded TKO Group (TKO) to Hold from Buy and removed the firm’s price target on the shares after TKO announced the approval of a $2B share repurchase program and a $75M quarterly dividend initiative, alongside a $3.25B all equity acquisition of Professional Bull Riders, On Location, and IMG from Endeavor Group (EDR). While “positive on the capital allocation plan,” the firm views the acquisition as “a misstep likely to dilute growth and adjusted EBITDA margin,” the analyst tells investors. Buying On Location, with over $1B in revenue but only a 6% adjusted EBITDA margin, “seems more like a favor than a strategically sound move,” while IMG “appears to be a messy fit with significant pro forma adjustments” and the PBR contribution is “relatively insignificant,” the analyst argues. With many growth catalysts now realized or effectively priced and management “seeming distracted by this off-center acquisition,” the firm is downgrading to a Hold.