The Pellucid Perspective - October 2016 - 5

GOLF
EQUIPMENT

TaylorMade sale: Whatever the outcome,
it's likely to be "unique"
By Jim Koppenhaver

omebody check the calendar but didn't adidas formally
announce that their golf brands were up for sale like.....last
August? I had almost forgotten about it given the elapsed
time and it having generated so little interest. (Then again, when I
crossed 55 the memory function isn't what it used to be so it may
not be all their fault). Not to be outdone however by GolfNow
and their hilarious internal sales video, the folks at TMaG decided to film their own little internal promotional video for their
staff ambassadors to remind them that "everything's great" (outside the uncertainty of the division and brand's future). Kudos
again to Tony Covey at MyGolfSpy (www.mygolfspy.com) and
his recent article titled "What TaylorMade CEO David Abeles
Says About TaylorMade Sale." I had a chance to view the video
Tony posted prior to TMaG making it private but his comments
summarizing the video (which you won't see) are on the money
so it's worth taking a trip over to the MGS site and checking it
out. (I'd also highly recommend you sign up, they uncover the
darndest things, I've found).
One would think that, if there were an obvious, interested
strategic buyer (i.e. another company already in
the golf business or tangent to it), there would
have at least been some
whispers within the first
six months of the "For
Sale" sign going up. So
the fact that this thing
has been at sub-human
decibel level over a full
year of being in play suggests that an opportunistic buyer is the more
likely scenario.
One
could also argue however
that it's like your next
door neighbor's house
that's been on the market
for over a year and you
wonder why until you
find out they have it listed at $100K over the last comp sale and
you've seen the inside which is nothing special. At any rate, at the
current intersection of the business growth potential, the asking
price, potential operational "synergies" (love that phrase, if half
of all the synergies claimed were ever realized, why do we keep
spinning off so many businesses annually?) and the macroeconomics of the golf equipment category, it doesn't appear we have

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any traditional buyer interest. Tony hints at the end of his article that something may break in the upcoming months but I'm
not feeling it. I wouldn't bet against him though; they predicted
the Nike golf equipment exit early in the morning of the day in
which Nike eventually announced their intent.
So, despite the PR video to encourage the brand ambassadors
and internal "troops" alike, I'm going to predict that the sale isn't
going to be "routine" and that the new owner will likely have some
non-golf industry approaches and ideas. One very real possibility
would be what I call "mercenary private equity." I'm seeing it increasingly in other industries and have some 2nd hand experience
with it in the Consumer Goods market. Basically the model is
to buy existing brands that have limited growth trajectory, above
average cost structures and legacy cultures that value minimizing
risk and loyalty to company veterans. The acquiring entity pays
a fair price for the asset (so the current shareholders walk away
with a good cashout) and then proceeds to cut the cost structure
by 30-40% in the first twelve months (pause and think about the
"system shock" that introduces). They rationalize the workforce

One would think that, if
there were an obvious,
interested strategic buyer
(i.e. another company
already in the golf
business or tangent to it),
there would have at least
been some whispers within
the first six months of the
"For Sale" sign going up.
by massively trading out experience for ambition (i.e. 50+
age, 20+ year veterans are replaced by <30 age, 5 year veterans who will make up for that knowledge gap by working
harder and having no life balance). The business topline
generally declines 10%+ in the first year but, when you reduced the cost structure by 30%+, the shareholders and the
equity group are pretty happy campers.
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Table of Contents for the Digital Edition of The Pellucid Perspective - October 2016