Apollo Global Management and 21st Century Fox (in the process of being bought by Disney) are believed to be on the brink of selling Endemol Shine Group, their global production asset. They have hired Deutsche Bank and Liontree to advise on the deal.

With over 800 productions sold into 79 territories across the globe and with operations in 23 countries, Endemol Shine is one of the largest television production and distribution companies in the world. It has had, however, a chequered investment history.

Founded in 1994 by two Dutch producers, Endemol was at the forefront of the rise in global entertainment formats with shows such as Deal or No Deal, MasterChef and, of course, Big Brother. In 2000 the company was bought by Telefonica for a jaw dropping €5.5bn. This was at the height of telcos seeking to reinvent themselves as more than just “dumb pipes” by investing up the value chain.

However, operational dynamics between an infrastructure player and a creative company were difficult, and, inevitably, synergies did not emerge. Telefonica listed 25 per cent of Endemol in 2005 at a value of just €1.1bn and in 2007 a consortium consisting of Mediaset (the Italian media company controlled by Berlusconi), Cyrte (an investment company owned by Jon De Mol, one of the original founders of Endemol) and Goldman Sachs Private Equity bought the public stake and Telefonica’s remaining 75 per cent share in a deal that valued the company at €3.4bn.

However, the timing of the deal, which was leveraged with a hefty 60 per cent loan, was unfortunate: just 18 months before the Lehman collapse. So, despite being a strong company in a healthy industry, Endemol faced challenges servicing its debts.

In 2012 a restructuring was agreed, which saw the three shareholders reduce their stake to below 50 per cent and lenders, including Apollo, take a stake. Over the next three years Apollo bought out the other equity shareholders.

Apollo’s distressed investment focus on “good companies with bad balance sheets” and their ability to invest across the capital structure of the company was well suited to this situation. In 2014 Endemol merged with Core Media, producer of American Idol (and also owned by Apollo) and 21st Fox’s Shine production business (founded by Elizabeth Murdoch) to create the Endemol Shine Group, a 50:50 joint venture.

Shine brought to Endemol a strong track record in drama. Just as entertainment and reality formats had been in demand in the noughties, drama has been the focus of production demand over the last five years.

The arrival of Netflix has brought in new capital and catalysed spending on drama budgets by traditional TV channels. Endemol’s portfolio of production companies produce high rating shows such as The Fall, Peaky Blinders, Ripper Street and Black Mirror in the UK and Hell on Wheels in the US.

These high-end drama productions sell well internationally. However, they do not have the format characteristics of entertainment programmes which can be remade in local countries and in different languages (for instance there are multiple local versions of Big Brother in India for different regions). These formats effectively “feed” the many local production businesses that Endemol Shine has across the globe. While the longevity of entertainment formats is considerable (Big Brother still sells well in multiple countries after nearly 20 years), the group has not had a break-out format for some time, and, in some markets, Endemol Shine’s production operations do not have sufficient volume to drive profitability.

The announced sale comes at a time when owning high quality programmes and programme rights is increasingly important for media companies. Netflix is shifting spending away from acquisitions to original productions and commercial broadcasters in the UK and US are looking to reduce dependency on an increasingly challenging advertising market by investing in content ownership. There are few assets that produce globally at scale. Endemol Shine is one of these.

Endeavour (formerly William Morris and IMG) is one potential buyer for the business. It is a talent group looking to expand downstream into production. Endeavour represents leading on-screen and off-screen talent, distributes (and produces) sports rights and owns and manages events in beauty pageants (Miss Universe), sport and fashion. The acquisition of Endemol would significantly up their leverage both upstream with talent and downstream with broadcasters and rights companies.

There are a number of other parties reportedly also circling Endemol Shine. One is Lionsgate, the production company behind Twilight and The Hunger Games, who bought cable network Starz for $4.4bn (€3.7bn) in 2016. Others include US network CBS (for whom Big Brother remains a key programme along with their in-house CSI franchises) and French producer Banijay, partly owned by Vivendi. X-Factor producer Fremantle has pulled out of the running.

Bankers are rumoured to be looking for between €2.5bn to €3bn for Endemol Shine including debt although some bidders are believed to be concerned by the level of debt that Endemol still carries. However, given the ability of Endemol Shine to strategically shift gears for a strategic buyer, more conservative views on the valuation could be proved wrong.

One final outlier is that Fox could decide not to sell their 50 per cent of Endemol Shine and consolidate their ownership instead. To date, Disney, which is in the process of buying Fox, has shown no interest in this strategy, but with Fox losing its bid to buy Sky recently (to Comcast) options may be being reviewed.

Tabitha Elwes is the partner leading the media practice at CIL where she works extensively both with private equity and strategic investors in media assets on both due diligence and strategy.