The Pellucid Perspective - June 2011 - (Page 6)
Acushnet transaction—big deal?
By Jim Koppenhaver
fter nearly a decade of relative tranquility as it relates to of $1.225B is roughly 1x 2010 revenue and 14x Net Operating the major golf equipment manufacturers, the proverbial Income (NOI). From Fortune Brands’ perspective it’s probably “other shoe” (FootJoy of course) has fallen with the re- a good (but not great) valuation, but it also meets an important cent announcement of the pending sale of Acushnet to a Korean criteria of an anticipated quick closing devoid of US anti-trust consortium of Fila Korea Ltd. and Mirae Asset Private Equity, reviews or having to consider divesting other existing business for $1.225B. While virtually every golf industry publication has components as well. For the Acushnet stakeholders (the manreported on the news, nearly every one is simply a regurgita- agement team and Acushnet employees holding Fortune shares tion or repackaging of the basic facts in the public press release, as part of their compensation over the years), I’d have to say that without any interpretation or insight into what it portends for they’re probably pretty happy about the outcome, although I the existing Acushnet business and team and how it will impact don’t know exactly how this purchase price is going to translate and change the landscape for competitors both in the US and into an immediate higher value for their Fortune shares. For abroad. The lone exception I found was E. Michael Johnson’s the Acushnet executives pegged to the deal and what has been interview with Wally Uihlein, which is instructive in outlining published as go-forward retention contracts, they’re probably Wally’s perspective on how the deal took shape and what it looks happy with the transaction price component of that, although like from inside Fairhaven looking out (http://www.golfdigest. I suspect that more than a few are looking at the compensacom/golf-equipment/blogs/hotlist365/2011/05/qa-with-title- tion on the back end, which will undoubtedly be tied to busiist-chief-wally-u.html?printable=true). ness performance goals, with some level of Subscribers to Pellucid’s tri-weekly digital trepidation. Regarding whether it’s a good Regarding whether deal for the Korean investors, that obviously newsletter, Outside the Ropes, were the beneficiaries of an 8-page treatment of the subject remains to be seen. They, and the Acushnet it’s a good deal the weekend after the deal was announced. team, are placing a high premium in the valufor the Korean We’ve had a number of responses and peration on the ability to grow the core franchisspectives submitted to that article which add es overseas through an increased distribution investors, that additional breadth, and several perspectives network and the belief that golf will expand obviously remains more rapidly abroad with a special focus on from the more independent-thinking industry stakeholders. Since the majority of the Korea in particular. While it’s not stated anyto be seen. golf industry world, however, doesn’t have the where publicly, one also has to believe that the patience or the curiosity to endure a 5+ page Korean investor group sees manufacturing eftreatment of the subject, I’ll offer a topline ficiencies in the short-term among countries version. Here’s what most people want to know that isn’t con- and regions with lower cost levels for acceptable quality. At the tained in the public press release: deal valuation, in my humble opinion, many of those things are • Was it a good deal for Fortune Brands, Acushnet and the going to have to come true for this to pay out in a reasonable Korean investor group? time horizon for return on the investment. • How will it potentially change the competitive landscape Regarding how this change-of-control for Acushnet will for the Big Four (Acushnet, TaylorMade-adidas Golf (TMaG), impact the competitive landscape, let’s first look at the Big Callaway & Nike) as well as the mezzanine revenue players Four. As I see it, this now weds at least 3 of the Big Four (PING, Cleveland/Srixon, etc.)? to major apparel players in the larger sporting goods industry • Does it have the potential to fundamentally alter the cur- as well as gives them extensive international distribution netrent golf industry trajectory of decline in both the golfer base works across multiple lines.(It’s also the model being pursued and rounds demand? with last year’s acquisition of Cobra by Puma but in that case, The other important question is, “Can I cover the above three on a much smaller and less aspirational scale). In my mind themes in the roughly 650 words I have left for this article to fit this puts Callaway at a significant disadvantage among the Big within my monthly space constraints?” Four in the short-term to compete primarily for their share of As the analysts peg the deal, the valuation was near the upper the overseas market, which is where everyone is placing their end of the range. Initial valuations had estimated a price range growth bets. This is not ignoring the fact that Callaway has of $1-$1.5M, but subsequent analyses which incorporated the a significant share of their business overseas currently in the ability of a legacy golf company (one already in the business club market (especially compared to Acushnet), but they’re not in some fashion) to dramatically grow revenue or reduce cost linked to multi-line, indigenous distribution networks which through the elusive concept of “synergy” lowered the discussed they’re going to now increasingly compete against. For what range to $0.9-$1.3B. According to the press release, the price I’m calling the “mezzanine revenue” players in golf equipment
6 The Pellucid PersPecTive
Table of Contents for the Digital Edition of The Pellucid Perspective - June 2011
The Pellucid Perspective - June 2011
PGA, USGA Back Adams’ ‘Tee It Forward’ Initiative
The Price Is Right
Acushnet Transaction—Big Deal?
Reality Setting in for Course Buyers, Sellers
May 2011 YtD Weather Impact, Apr 2011 YtD Utilization
San Francisco/Oakland, CA Core Business Statistical Area (CBSA)
The Warrior Way
Comings & Goings
A Step ‘Forward’ for Golf?
The Pellucid Perspective - June 2011