Acushnet (NYSE:GOLF) is the big daddy in the golf world. They make Titelist balls and clubs, along with FootJoy shoes. Titelist is the #1 ball in the game and FootJoy is the #1 shoe. TaylorMade (owned by Adidas) is also big, especially in equipment, but it's been struggling the past few years. Adidas is currently shopping the business. Callaway (NYSE: ELY) is another well-known smaller player.
There is a team of 13 underwriters on the GOLF deal (which is $435M at the mid-point of the range) so it's getting a major push. Investment bankers are the sorts of people who might play the game. The lead banks are J.P. Morgan and Morgan Stanley. Click here to review the Acushnet IPO slide deck.
The obvious issue facing investors is that golf isn't growing much as a sport. There are large emerging economies like China that help but the sport has been suffering. Golf is fun, but it clings to so much tradition that it is very hard for recreational players to regularly enjoy the game. Shorter courses would help as would the briefly-considered 8 inch hole size for beginners. Spending 10 minutes putting the ball three or four times is a waste. The game today is impractically long for working people and/or those with families. Luckily for Acushnet, their main franchise, balls, are something that golfers always need more of given how many end up in streams, ponds, and forests.
Befitting their positioning as a company with a strong franchise in a slow-growth business, they will be paying a dividend. At the mid-point of the range it's about a 2% yield. (It's worth noting that Verizon (NYSE: VZ) and AT&T (NYSE:T) yield more like 5% so seem like better investments.
Revenues for 2015 were $1.5B and "adjusted EBITDA" expanded to $215M. Generally, revenues may grow in the low-single digits with higher EBITDA growth. In terms of valuation there will be 74M shares outstanding post the IPO. At the $22.50 mid-point that puts the market cap at $1.7B, or a bit over 1x sales. FWIW Callaway Golf sells for 1.2x sales and has a much lower yield. On a pure valuation basis, the deal looks reasonably attractive.
We'd be a little worried about Under Armour (NYSE: UA) which has introduced their own line of golf shoes and apparel. (These are higher profit areas of the industry. Equipment is the worst and UA has made it clear they won't be going there.)
GOLF is a solid, stable, well-run company. The valuation is reasonable so investors can consider it a "GARP" candidate. There might be catalysts for improved growth if the game got smarter about attracting recreational players and evolving the game. The potential sale of TaylorMade could also be an opportunity. If Acushnet were to acquire it, they could rationalize the equipment market somewhat and improve margins in that segment overall. It would be a bold move, but if the price was right...
Besides the usual risks to GOLF, they might face more nimble competition if UA decides this is a business they really want. If UA gains enough share in shoes and clothes it could begin to dampen results at Acushnet where they would be left with balls and equipment. This also feels like a market where some upstarts could pull off a "dollar shave club" type of model that could work and put some pressure on pricing, especially for golf balls.
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