Callaway - TopGolf "Merger"

[GolfSpy Barbajo]

Posted this on Twitter this morning (click here to view) - copied here for discussion purposes:

 

Some interesting stuff to unpack from the

@CallawayGolf - @Topgolf "merger." Callaway already owned 14% of TopGolf, and is gaining control by issuing 90 million shares of common stock to Topgolf shareholders....

 

According to Callaway's press release, that's worth $1.986 BILLION. Callaway is also assuming TopGolf's debt, worth another $555 million, making the whole shebang worth about $2.5 BILLION.

 

TopGolf has 63 locations worldwide with more in the works, and served over 23 million guests in 2019. Over 50% identified themselves as "non-golfers."

 

Merger also includes Toptracer ball tracing tech used on TV and is currently in use at over 7,500 driving range bays. Toptracer revenue has grown 233% in last 3 years.

 

Have you played World Golf Tour online? That's part of the deal, too. 28 million members as of last year, and another revenue stream.

 

Callaway predicts a diversified business mix: 46% revenue from Topgolf, 30% from golf equipment, 24% from softgoods. Callaway reported $1.7 Billion in sales in 2019 - projecting to grow to $3.2 Billion by 2022, with anticipated growth of 10% per year after that.

 

Despite a down Q2, Callaway placed itself in a strong cash position, with over $630 million in cash and available credit. Just goes to show that in a pandemic, cash is king.

 

Lost in the merger hubbub - Callaway is projecting a record Q3 result - an estimated $476 million in sales (up 12% YOY), with an EBITDAS of $87 million - up 53% YOY. e-commerce growth has fueled much of that growth, including a 108% increase in soft goods sales.

 

TopGolf-Callaway possibilities are wide-ranging. It's likely you'll be able to demo, get fit for and buy Callaway gear at any TopGolf, along with Travis Mathew, Ogio and Jack Wolfskin clothing and accessories. Retail without the middle man can be very profitable.

 

Bottom line - Callaway is no longer primarily a golf equipment company. The company has effectively "equipment-proofed" its business, and is now a multi-billion dollar active lifestyle company with a focus on golf.

 

Sure seems as though from a business standpoint - Callaway is playing 3D chess, Acushnet is playing regular chess, the rest of the Big 5 is playing checkers while the remainder of the industry - even though they make great equipment - is playing Candyland.

[Slater]

Wow, that's like the super power in golf now.  

[Crowev01]

I'm a fan of some of their equipment, but I haven't liked their business approach since they mangled Ben Hogan so they could use the Apex name. 

These massive corporate juggernauts may have more power to reach the consumer, but I'm seeing Callaway at Walmart now, and as we know from the Wilson story, that can hurt. 

Top Golf, as an entity, certainly attracts more people to the game, and it will probably serve to balance Callaway's assets, but that's a lot of debt to take on with a "growing and successful" company. Amazon bought Whole Foods and they had zero debt, but that chain now operates at almost a loss and revenue is falling there despite the industry experiencing a better than average year as a whole. I would be worried they are heading into uncharted territory, having to now operate F&B and entertainment experiences. 

I dont know if I like this yet, because it feels like a lot of consolidation in an industry where market share keeps the little guys alive. 

We will see what happens, but was it the right move? I dont know. 

[ejgaudette]

Given the potential opportunity to be the first brand a non-golfer interacts with is something that I think could provide value beyond what Top golf already represents. 
Someone who starts a Top Golf will likely have Callaway on their short list of clubs, or the only one. With the current interest in the game this could translate to some sales that they would not have gotten otherwise. The only issue there I would imagine is the price point. Having a range a bit above those box sets, but not $500+ for a driver would help. Callaway is indeed the most diverse golf company currently, and do have a wide number of revenue streams now beyond equipment. Feels a bit high risk, but high reward. 

[dlow206]

Interested in seeing if this works out for Callaway financially. For a merger to be financially successful, 1 + 1 needs to be >2. Lets see what happens.

[dlow206]

The market isn't looking at this very positively

[fixyurdivot]

On 10/28/2020 at 8:51 AM, GolfSpy Barbajo said:

Sure seems as though from a business standpoint - Callaway is playing 3D chess, Acushnet is playing regular chess, the rest of the Big 5 is playing checkers while the remainder of the industry - even though they make great equipment - is playing Candyland.

Interesting summary and perspective.  There seems to be a lot of love presently for the DTC, smaller mfg's.  I think many long for the good old days of feeling like your something other than a number or piece of marketing meat.  My recent experiences with two of the smalls were very positive.  It will be interesting to see how this move works out for Callaway and whether any of the other BIG's make counter moves.  No matter what they do, we spies will be here to hold them accountable .

[jddaigneault]

My thoughts...

1. I hope this means there will be some better than total garbage clubs at Top Golf locations. I know they’re already Callaway, but dang. At least toss me the option of actual golf clubs when I’m there!

2. I want a Top Golf Suite near me ASAP. Definitely won’t happen because SoCal could sustain an outdoor one, but it’d still be awesome. 

3. How much of this may have been brought on by Top Golf perhaps saying they needed to unload some portion of their company, and Callaway stepped in to make sure Taylormade or Titleist didn’t? I have to think that may be plausible. 

4. I think Callaway may be seeing that Top Golf offers an increasingly tech based demographic (the youth) an opportunity to play a “slow, boring game” in a fast paced model that fits their attention span. Indoor/arcade type facilities are super common in Japan, due to the massive expense of playing at courses and the tech driven nature of the simulation software. You can friggen kill zombies with golf balls...

[yungkory]

9 hours ago, dlow206 said:

The market isn't looking at this very positively

Probably drove their own stock down so they could buy it up themselves, then crush and sell it at ATH

1 hour ago, jddaigneault said:

My thoughts...

1. I hope this means there will be some better than total garbage clubs at Top Golf locations. I know they’re already Callaway, but dang. At least toss me the option of actual golf clubs when I’m there!

2. I want a Top Golf Suite near me ASAP. Definitely won’t happen because SoCal could sustain an outdoor one, but it’d still be awesome. 

3. How much of this may have been brought on by Top Golf perhaps saying they needed to unload some portion of their company, and Callaway stepped in to make sure Taylormade or Titleist didn’t? I have to think that may be plausible. 

4. I think Callaway may be seeing that Top Golf offers an increasingly tech based demographic (the youth) an opportunity to play a “slow, boring game” in a fast paced model that fits their attention span. Indoor/arcade type facilities are super common in Japan, due to the massive expense of playing at courses and the tech driven nature of the simulation software. You can friggen kill zombies with golf balls...

I wouldn't hold my breath as far as the club selection goes. They might be stocking all of the locations with the huge amounts of CPO inventory for the most part, and then if you want to hit the "good" stuff you would do so in a fitting. I guess it could happen though since they're the manufacturer and everything is now at cost for them.

[russtopherb]

Not surprising. Callaway has been expanding their holdings for quite some time, and doing it relatively smartly. 

Good move on their part. 

[cksurfdude]

I'd bought some Callaway stock 6 or 7 years ago when I'd first read about Top Golf - it seemed like a very cool thing that had potential (and for once I was right ) - and Callaway shares were the way to get a financial interest in it. 

Opinion: part of the reason for that sharp drop in share price when this was announced may be the merger is being seen as dilutive; that is, with the additional shares issued the corporate earnings are distributed over a larger base, so.. a potentially lower earnings per share, so.. a corresponding lower stock price.

Anyway, financial b.s. aside I initially bought the shares as a very long-term investment ... so I'm also in the let's wait and see where this goes camp.

[StrokerAce]

....and it's complete.

2.6 billion in stock!

https://www.sandiegouniontribune.com/business/story/2021-03-08/callaway-golf-completes-acquisition-of-high-tech-driving-range-firm-topgolf-for-2-6-billion-in-stock

 

Callaway Golf completes acquisition of trendy Topgolf for $2.6 billion in stock

Callaway Golf wrapped up the all-stock acquisition of flashy driving-range outfit Topgolf International on Monday — adding entertainment venues credited with luring new players to the game to the Carlsbad company’s club, ball and apparel portfolio.

The deal, first announced in October, called for Callaway to issue about 90 million of its shares to Topgolf stockholders. The Carlsbad company was an early investor in Topgolf dating back to 2006. It already owned a 14 percent stake in the firm.

At the time, Callaway’s stock traded in the $19.40 range, valuing the piece of Topgolf that it didn’t already own at $2 billion.

But Callaway’s stock price has been rising since then. Based on Monday’s closing price of $29.52 per share, Callaway paid $2.66 billion to acquire the rest of Topgolf beyond its existing ownership.

Chief Executive Chip Brewer noted that the transformational combination “has already created and will continue to create meaningful shareholder value,” which seemingly was a reference to gains in the company’s share price since the acquisition was announced.

“Callaway and Topgolf are just better together,” said Brewer. “Callaway’s leadership in the global golf equipment market and geographic diversity, combined with Topgolf’s revolutionary technology platform and access to golfers of all abilities, will allow both companies to accelerate growth and create competitive advantages.”

With the acquisition complete, Callaway shareholders own 51.3 percent of the combined company and former Topgolf shareholders own 48.7 percent.

Topgolf operates about 60 venues in North America. Before COVID-19 restrictions, the company reported full-year revenue of $1.05 billion for 2019, according to filings with the U.S. Securities and Exchange Commission.

Topgolf had 23 million visitors to its venues that year, which is nearly as many as the 24 million golfers in the entire U.S., based on research from the National Golf Foundation. The company reportedly explored going public at a valuation as high as $4 billion, according to Bloomberg News.

But pandemic closures dampened its financial results. Through the first nine months of 2020, Topgolf’s revenue came in at just $485,500, according to the proxy statement for the Callaway transaction. That was down from $794,100 for the same period the prior year.

Topgolf has been looking to add several new venues in the U.S. In San Diego, the company has been talking with the Port of San Diego about possibly building a 68,000-square-foot flagship facility on a 7-acre site along East Harbor Drive. Those talks are in their early stages. The company has two sites in the Los Angeles area where it expects to open venues in 2022.

“Together with Callaway, Topgolf has the opportunity to build upon its rapid growth story, bring the Topgolf experience to new communities and advance our mission of making golf a more inclusive and accessible game,” said Erik Anderson, Topgolf’s executive chairman, in a statement.

Callaway posted full-year revenue of $1.6 billion, down slightly from the prior year. During the pandemic, golf rounds surged, particularly in the U.S., as the sport was considered a relatively safe outdoor activity. Apparel sales, however, declined amid lockdowns.

Callaway added three new members to its board of directors as part of the deal, bringing the total number of directors to 13. Brewer will lead the combined company as president and chief executive officer. Topgolf CEO Dolf Berle will remain through a transition period before stepping down. John Lundgren will remain chairman of the board, while Erik Anderson will serve as vice-chairman.

The combined company will be headquartered in Carlsbad, but Topgolf will continue to operate from its headquarters in Dallas.

 

[TBT]

I think having the ability to get fit at Top Golf would be cool.

I could also see them giving you the ability to demo new clubs there


Sent from my iPad using MyGolfSpy

[fixyurdivot]

This caught my eye.

Presuming C19 is heading into our collective rearview mirror, and anticipating the pent up desire of a whole lot of folks wanting to get back part of recreational time lost during the pandemic, this sure looks like a smart play on their part.  I view the Topgolf venue as the new bowling... less the noise, cigarette smoke, and those nasty shoes.

1 hour ago, TBT said:

I think having the ability to get fit at Top Golf would be cool.

I could also see them giving you the ability to demo new clubs there


Sent from my iPad using MyGolfSpy

That would make lots of sense and I would be surprised if the idea isn't already being vetted.  

[cksurfdude]

12 hours ago, TBT said:

I think having the ability to get fit at Top Golf would be cool.

I have not yet been to a Top Golf .. wanna go agree check it out; but they're supposed to be fun with music and drink service!! .. but I've heard the balls with RFID chips in them are heavier than normal, so while fittings are possible my guess is between that and presumably all Callaway gear the fittings would maybe be oriented more towards recreational and newer golfers (eg. a beginner full bag set)..?

Regardless, definitely another way to promote the brand!

 

12 hours ago, TBT said:

could also see them giving you the ability to demo new clubs there

Not sure but I believe they already do this?

[cksurfdude]

10 hours ago, fixyurdivot said:

This caught my eye.

Presuming C19 is heading into our collective rearview mirror, and anticipating the pent up desire of a whole lot of folks wanting to get back part of recreational time lost during the pandemic, this sure looks like a smart play on their part.  I view the Topgolf venue as the new bowling... less the noise, cigarette smoke, and those nasty shoes.

Yeah that was an eye-catching stat!

Your thinking on the "new bowling" makes sense .. people wanna socialize and try something new, have fun .. especially outdoors.

like I said above, I'd like to go but there's not one near me....

[Micah T]

I’ve got one 2 miles from my house; my wife and I are “those people” who bring their own clubs. My wife due to be a lefty and me due to being a snob. But before c19 we’d go at least once a month, so I’m sure they’ll be packed with mask restrictions ending here on 4/10. Getting to demo new equipment while there seems like a gold mine to me...


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[HardcoreLooper]

12 hours ago, cksurfdude said:

I have not yet been to a Top Golf .. wanna go agree check it out; but they're supposed to be fun with music and drink service!! .. but I've heard the balls with RFID chips in them are heavier than normal, so while fittings are possible my guess is between that and presumably all Callaway gear the fittings would maybe be oriented more towards recreational and newer golfers (eg. a beginner full bag set)..?

Regardless, definitely another way to promote the brand!

We're 15 minutes away from the Top Golf in Richmond, and we go every few months.  We absolutely love it.  That being said, there is no way in hell that I'd get fitted using the RFID balls.  Ours has the little indoor Swing Suite, so they could certainly do fittings in there.  I don't see why any location couldn't have a launch monitor available for fittings.

[Herts JoaTMoN]

I kind of fit myself using the top tracer driving ranges. They have a mode that adjusts the readings to compensate for the fact your using range ball, but its great for tweaking loft and lie settings on a driver and trying different shafts.

You dont get super accurate numbers but its good enough for like for like comparisons back at home with all the data once you are done. Can see dispersion. Numbers for each shot. Averages for each set up.

I put in the details to the app before i head to the range. Ie. GBB - 9* - EvenFlow. GBB - 10* - Evenflow. GBB - 9* Draw - Evenflow. Then ill go. take the shots and look at differences in carry, dispersion. etc etc. As someone who likes to try different shafts alot. I love to do the A vs B testing with numbers I can look back on.