Golf Industry Ripe For Consolidation
Ever since the U.S. economy went into a tailspin, the golf industry has followed suit. Golf is not a cheap recreation and when consumers got pinched so did golf, to a certain extent. Many local golf courses struggled and shut down, and golf related businesses faced declining sales. However, golf remains a popular sport and continues to become more and more global. Businesses are taking notice, as well.
Small but Noteworthy
Last week TaylorMade, the golf equipment company owned by giant Adidas, announced that it was acquiring smaller competitor Adams Golf (Nasdaq:ADGF) for $10.80 a share. The deal price represented a 70% premium to the then trading price of Adam's shares. The deal valued Adams at $70 million. For years prior to that Adams was a tiny golf company that was struggling to make a name for itself against golf's big brand names, like Titleist, TaylorMade and Callaway.
Adams found its niche with its easier to hit hybrid clubs. Apparently TaylorMade liked what it saw and wanted to bring the company into the mold. By all accounts, TaylorMade is getting a great deal. Adams comes debt free with $18 million in cash and since TaylorMade's big focus has been on drivers, Adams hybrid technology is a welcome addition.
Golf Going Forward
Adams Golf was very appealing to TaylorMade for a variety of reasons. In similar fashion, retailer Golfsmith International Holdings (Nasdaq:GOLF) might be an interesting opportunity to a larger player. Golfsmith is the nation's largest pure play golf retailer with over 80 locations nationwide. The company has a market cap of $72 million and net debt of $40 million; annual sales are nearly $400 million. Net margins are less than 1% at the moment, but are improving, and have a huge impact on earnings relative to value, given the company's sales.
Callaway Golf (NYSE:ELY) remains as the last pure play golf equipment company that is not owned by a bigger company. Acushnet, owner of the Titleist and Foot Joy brands, was once part of the conglomerate Fortune Brands, but was sold off to Fila of Korea. So Callaway finds itself not only competing with other golf equipment companies, but the deeper pockets of the parent holding companies. The company has a market cap of $440 million cash, a clean balance sheet with $43 million and no debt.
The Bottom Line
The future of golf became all the brighter when shipping giant FedEx (NYSE:FDX), sponsor of the yearly professional golf playoff system known as the FedEx cup, signed with the PGA Tour for another five year sponsorship, through 2017. The enthusiasm for golf continues to grow around the world and the future looks bright, as more youngsters are drawn to the game. Thats great for golf, its players, fans and golf business.
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At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.