The Pellucid Perspective - November 2020 - 8

TRANSACTIONS
OF NOTE

PHOTO BY JOE HENDRICKSON / SHUTTERSTOCK

The Topgolf venue in Naperville, Ill.,
outside of Chicago.

debt of about $555M - depending on the rate and debt coverage provisions, this might explain the need for additional funding from the equity investors.
Of course, the statements from Callaway and a number of
people evaluating the transaction are touting " synergy " , potential and the value of " TopTracer " for golf ranges and the reach
of WGT - the company best known for the Golden Tee video game that now claims 28M mobile users. While I love the
" TopTracer " technology at golf ranges and know that WGT has
some untapped potential (they have a great weather app and
golf booking platform they don't use); there better be a whole
lot of skillful integration in order to justify the price Callaway
is paying.
Apparently, I'm not the only skeptic in town. Callaway traded at $21.41 on October 27 and dropped to $15.25 on October
28. The share price used in the transaction was $19.40 so the
value of the deal dropped from $2.3B to about $1.9B since it is
a stock deal as opposed to cash.
While the drop in Callaway shares means the deal is " less
expensive " ; Callaway is depending on some fairly optimistic
projections of EBIDTA earnings to justify the purchase. The
$60M EBIDTA of 2019 should have been more like $240M
using the projected post-merger EBIDTAs in the Callaway
Press Release. That point is raised by Casey Alexander in his
October 30th analysis from Compass Point Securities. Alexander also raised the question of the " high price " Callaway was
paying during an analysts call, which was reported in a Yahoo
Finance article of October 29.
As we mentioned earlier, the TopGolf equity investors had
to kick in additional funding due to the pandemic impact on
2020 TopGolf operations. Private equity investors generally
don't like to do that; but in this case they did it protect the
value of their investment. Is it possible that the Callaway acted
in order to protect the value of their investment? The value of
that investment has been a significant factor in assessing the
overall valuation of Callaway as TopGolf expanded and grew.
That would make the merger more akin to a shotgun wedding.
The more important question is that the pandemic-fueled
invigoration of interest in golf is one of the factors cited by

8 THE PELLUCID PERSPECTIVE

Callaway in their justification for
the merger. It's the same over-riding
question for all of us in the golf industry - can we sustain this momentum?
Of course, the answer is one of
the following - it depends, maybe or
nobody knows. By the time you read
this, the election will be over and we
will know whether additional lockdowns are a primary or secondary tactic for combatting the pandemic. The
UK's new lockdown effective November 5th calls for all golf courses
to be closed. An additional lockdown
in the US will probably entail similar restrictions put in place even after
lobbying actions to at least let courses open in the US during
the first lockdown. Those restrictions varied from state to state
and even county to county; but some of them were so onerous
in terms of tee sheet spacing, cart usage and F&B service that
profitable operations were virtually impossible.
For northern courses that are closing up, the impact of a
lockdown should be minimal; although those that do holiday
parties will be affected. For courses that are open year-around;
the impact would be major, particularly in areas that depend on
snowbird traffic.
Then there is the vaccine wildcard as to how effective it will
really be, how fast it is deployed and whether Covid-19 is effectively eradicated or simply more under control. If the pandemic
is simply more under control; it is likely that we will see the
fundamental changes in behavior that supported the meaningful boost in golf participation over the past six months last into
2021 and probably beyond.
In a perfect world, the vaccine would be 100% effective, lives
would be protected and activities would return to normal. In the
immortal words of Desi Arnaz - " I don't think so, Lucy " . It is
far more likely that Covid-19 will remain as a factor, improved
hygiene protocols will remain place and our behaviors will be
changed for the foreseeable future.
While we send our condolences to other parts of the economy; this should bode well for many golf course owners and
operators. As we continue to see evidence of record rounds and
revenue performance for most of our clients and others in the
industry, we are encouraged that golf will remain an excellent
" safe " recreational option into 2021 and beyond. While this new
prosperity is not universal - resorts will continue to suffer and
private clubs enjoying record rounds are also losing significant
ancillary spending - many courses stand positioned for continued success.
In the event of another lockdown occurring in late January
with a different administration; we would hope that the US golf
industry's case for golf as an acceptable " safe distancing " activity
will not be forgotten. We also hope that improved hygiene procedures and better understanding of the virus will reduce the risk of
the draconian measures regarding tee time spaces being repeated.
NOVEMBER 2020



The Pellucid Perspective - November 2020

Table of Contents for the Digital Edition of The Pellucid Perspective - November 2020

TOC
Credit card fees scam exposed, NGCOA leads resolution
Can COVID dividend replace substantive historical industry subsidies?
TopGolf & Callaway; Marriage made in heaven or shotgun wedding?
Oct GPH post slight up, no barrier to continued success
Utilization was up double digits for 3rd consecutive month
#22 Philadelphia, PA; City of Brotherly Love (at least for golf)
11 Activities, a wild assortment of unusual transactions & Hail Marys
The Pellucid Perspective - November 2020 - TOC
The Pellucid Perspective - November 2020 - Credit card fees scam exposed, NGCOA leads resolution
The Pellucid Perspective - November 2020 - 3
The Pellucid Perspective - November 2020 - 4
The Pellucid Perspective - November 2020 - Can COVID dividend replace substantive historical industry subsidies?
The Pellucid Perspective - November 2020 - 6
The Pellucid Perspective - November 2020 - TopGolf & Callaway; Marriage made in heaven or shotgun wedding?
The Pellucid Perspective - November 2020 - 8
The Pellucid Perspective - November 2020 - 9
The Pellucid Perspective - November 2020 - Oct GPH post slight up, no barrier to continued success
The Pellucid Perspective - November 2020 - 11
The Pellucid Perspective - November 2020 - Utilization was up double digits for 3rd consecutive month
The Pellucid Perspective - November 2020 - 13
The Pellucid Perspective - November 2020 - #22 Philadelphia, PA; City of Brotherly Love (at least for golf)
The Pellucid Perspective - November 2020 - 15
The Pellucid Perspective - November 2020 - 11 Activities, a wild assortment of unusual transactions & Hail Marys
The Pellucid Perspective - November 2020 - 17
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