The Pellucid Perspective - January 2011 - (Page 6)
2011 equipment news highlighted by Acushnet fate
By Jim Koppenhaver
he annual PGA Merchandise Show is about to unveil the year’s big news in equipment and all things golf. So, what is it? Yet another adjustment feature for drivers, irons that the 15-20 handicappers in Golf Digest and Golf Magazine’s equipment reviews will swear “I can’t slice this club!” or someone proclaiming that it’s still “the year of the wedge?” None of the above in my opinion. Equipment technology in 2011 is going to be vastly overshadowed by the drama of watching the Acushnet sale or spinoff unfold and the potential other storylines it will spawn. It will also be a critical year for marketing and sales execution for the “boys in white blazers” as the executive team will do doubleduty in trying to hold altitude while a number of ”mechanics” go through their plane in-flight. First, let’s talk about a couple of potential options in the mandated change-of-control event set in motion late last year by Acushnet parent Fortune Brands. One initial interesting aspect was that Fortune chose, potentially, three different strategies for splitting up the curiously diverse conglomerate: 1. Keep the Premium Spirits business ( Jim Beam et al) intact under the continuing Fortune corporate banner; 2. Spin off (tax free) the Home & Security business (Moen et al); and 3. Either sell or spin off the Acushnet business (hopefully all of you reading this know what’s in the Acushnet portfolio). While I don’t know the exact logic behind the sell/spinoff option unveiled in the announcement specifically for Acushnet, for some reason they’ve chosen to keep multiple options open but are leading with the outright sale-in-whole, with Morgan Stanley recently named as the financial advisor to lead that attempt. In looking at the potential buyer candidates and scenarios, longtime Pellucid sympathizer and Gilford Securities analyst Casey Alexander recently penned what I thought was an intelligent review summarizing and handicapping the range of potential suitors. Since Casey has probably forgotten more about corporate transactions and financing than I know, with his permission I’ll borrow heavily in this section from his thoughts on who might be in the hunt, why, and whether they could pull it off.
this would be like making 4 the hard way. • Nike: Global player, they can handle the purse but big obstacles in anti-trust (footwear) and culture (the Nike “way” vs. the Acushnet “process”). Casey points out that they’d likely have to kill their current Nike ball business (which wouldn’t be the end of the world and I believe it’s outsourced anyway so not a manufacturing issue) and the footwear dance between the flagship Nike brand (and reason for being) and FootJoy would be challenging to say the least. • TaylorMade-adidas Golf (TMaG): Casey sees these guys as “committed to winning in the marketplace” vs. pursuing growth by large acquisition and the accompanying risk it entails. I think they could sure use the help in the ball business but, as Casey points out, the footwear dilemma is equally as challenging here as the Nike situation. While it seems that TMaG may have a slight advantage in current market momentum in their core categories, Casey doesn’t think it fits their strategy and I agree that it doesn’t seem to be the Mark King mentality.
Non-golf company buyers
• Asian Conglomerate/Multi-National: This is an interesting option as outlined by Casey’s above classification and the strong points favoring this option: 1. Acquisition of a global brand and powerhouse in golf vs. trying to build one 2. Acushnet’s recent focus on Asian growth strategy (Korea in particular) and 3. It’s where the world money currently is and favorable exchange rates would provide a financing tailwind. If this comes to pass, let’s hope they do better than the Japanese did during their turn at the wheel in owning Pebble Beach (buy high, sell low). • Private equity buyers: Casey doesn’t favor this option based on the poor track record of previous private equity returns in golf deals (he cites Spalding, Macgregor, True Temper and Nickent) and the potential lack of a reasonably-timed exit strategy. He cautions however that, with considerable money currently available in PE, a momentary lapse in judgment coupled with ready cash in their pocket could produce this outcome.
Existing golf company buyers
• Callaway: Tough given their relative small size, tough on anti-trust (clubs & balls), tough on financing. Casey opines that Callaway could eliminate several of the obstacles either by trying to acquire a piece of Acushnet (if that becomes a purchase option in the process) or by partnering with a Private Equity firm. Factor in that Callaway isn’t exactly knocking the cover off the ball so to speak in current business performance,
• Based on the anti-trust challenges among golf company buyers (i.e. no “perfect portfolio fit”) and the considerable risk factor to a private equity play, he gives due respect to the very real potential that a sale at an acceptable price and terms to Fortune Brands may push this into the Plan B spinoff option. He cites several pro and con implications of a spinoff option; on the positive side is the excellent management team and established predictable business performance, while on the negative side is January 2011
6 The Pellucid PersPecTive
Table of Contents for the Digital Edition of The Pellucid Perspective - January 2011
The Pellucid Perspective - January 2011
Municipal Courses Face Major Property Tax Challenge
Dec YtD Weather Impact, Nov YtD Utilization
2011 Equipment News Highlighted by Acushnet Fate
Is Groupon Good for Golf?
Symposium Examines Varied Aspects of Affordability in Golf
Dallas, Tx Core Business Statistical Area (CBSA)
Yes! Golf the Recession’s Latest Victum
Year of Change for Golf, for Better or Worse?
The Pellucid Perspective - January 2011