A Cautionary Tale

No doubt the phones are ringing off the hook at Adidas HQ, with non-disclosure agreements being executed and a spiffy virtual data room available for the lucky few pre-qualified parties.  This Micheal Johnson article could serve as the Risk Factors section of the offering memorandum, covering those long-forgotten prior golf equipment transactions such as this personal favorite:

Spalding/Evenflo to KKR In 1996 noted private investment firm Kohlberg Kravis

Roberts acquired a majority interest in Spalding and Evenflo, renaming the company Spalding Holdings Corp. Wall Street estimates pegged the amount between $900 million and $1 billion. Although Spalding was a massive sporting-goods company with strength in golf, including the Top-Flite and Etonic brands, the company floundered to service its monumental debt load as an increasingly competitive marketplace in golf along with some business missteps put the company in a precarious position. Eventually the company sold off all its non-golf businesses (to Russell Athletic) as well as Etonic, renaming the remaining the entity Top-Flite.

It's my fave because the Evenflo brand is now so wonderfully obscure... and also because we all love a good train wreck.

It's a great trip down memory lane, and reminds those of us of a certain age of some brands that seemed important at the time.  For instance, I love those Strata balls..... for an hour-and-a-half.  But you'll quickly note that most of these deals weren't big winners, and the same names turn over time and again.

This one, for instance, is probably considered a success story:

Odyssey to Callaway In July 1997, Callaway Golf purchased putter maker Odyssey for $130 million, or nearly four times the company’s annual sales of $35 million at the time. “[We] decided that by the end of 1997 we wanted to provide the golfing public with the best-performing putter in the market and we believe with this acquisition we have accomplished that goal,” said Don Dye, Callaway’s president and CEO at the time. Since the acquisition Odyssey has continued to be among the leaders in the category, with introductions such as its iconic 2-Ball. In 2015 Callaway’s annual report noted that putter sales accounted for $86.3 million in revenue.

You don't need my finely-tuned  Spidey-sense to tell you that that's a loser in a strict financial sense.  Now this is the transaction that most closely matches what's on offer here:

Titleist to Fila Korea

The largest-ever purchase of a golf-equipment company occurred when Fila Korea Ltd. and Mirae Asset Private Equity purchased the Acushnet Company (comprised of the Titleist, FootJoy and Pinnacle brands) for $1.225 billion in 2011. Acushnet remained a standalone operation in Fairhaven, Mass., while also expanding in Asia where golf was growing and even greater potential was possible. Acushnet chairman and CEO Wally Uihlein helped engineer the deal that kept intact the company and brands he nurtured for 20-plus years and allowed him to remain in charge. “If I could have achieved anything when I started here, it would be to get the company in a position where it can sustain the brands, and today that is dictated by the globalization of golf,” said Uihlein at the time of the sale. “Companies that are U.S. centric will be roadkill on tomorrow’s scorecard.”

That deal certainly worked out well, at least for Wally.  But given how few buyers there will be for such a grouping of assets, the smartest thing Forune Brands might have done was to beat Adidas to the exit door.

Tony Covey, d/b/a MyGolfSpy, fills in some background and also offers up a name worth thinking about.  First, they've apparently been trying to sell the company on the QT for a while now:

As you may recall from the last time we discussed the potential sale of TaylorMade, adidas Group had entertained a round (I'm told two, actually) of offers for the company before announcing that a final decision would be made after Q1 and following a strategic review.

Tony adds this about potential buyers:

Potential Buyers

We reported earlier that Bridgestone was a potential buyer. We're told the company had dropped out after the first round of bidding, and we're not sure they'll jump back in now that things are a bit more official. 

Despite persistent rumors, and I suppose wishful thinking, we don't believe Under Armour is potential buyer as it's unlikely adidas would sell to a major competitor. 

The most likely buyer will emerge from the private equity world. That was the case with 5 of the original 6 bidders we heard about.

I agree with him about Under Armour, but for different reasons entirely.  But Bridgestone is interesting speculation...  Obviously they're big enough to do anything they damn  well please.  and they're already in the golf business in a big way.  They're attempt to penetrate the equipment market hasn't made much progress in the U.S., so this could "solve" that problem rather quickly....

On the other hand, it's a really difficult, low-margin business in a flat industry...So we'll pull up a comfortable chair and have a bowl of popcorn at the ready, and enjoy the show...