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Adidas KPS Takeover – A New Surge for Taylormade Possibly?

May 2017


It’s been an extraordinary few days since the announcement of a new 10-year deal between Rory McIlroy and TaylorMade.

We’d barely had time to baulk at the figures involved before news broke that Adidas would be exiting the golfing business to focus on the apparel game, with chilling echoes of Nike’s similar shock departure just nine months ago.

Of course, the three main equipment brands falling within the Adidas Group umbrella are Adams, Ashworth and TaylorMade itself, and it was noteworthy that buyer KPS Capital Partners snapped up the lot for a fee of just $425 million – one that appears very handy indeed when you consider that not all of it was in cash.

In fact, compared with the current market capitalization of Callaway ($1.24 bn), and the going rate for Titleist’s parent Acushnet six years ago ($1.2bn), it pretty much translates into a steal.

A tumultuous time for TaylorMade

It’s been clear that Adidas’ golf equipment constituents have been up for grabs for some time, although it now feels rather like a firesale, especially given CFO Robin Stalker’s tetchy declaration 12 months ago: “What we want for it is the best price we can get for it.”

According to the New York Post, Adidas have been absorbing losses of $75-$100 million per year from its golf equipment division. Part of that is down to Adams, who haven’t had a noteworthy release since early 2016, while even Ashworth has faded towards the periphery.

But it is the TaylorMade conundrum which is most striking. It’s certainly been a ‘mixed’ couple of years for the equipment powerhouse, given that it was recently usurped as the market leader by Callaway in the woods department, and continues to trail its rival in sales of both woods and irons. Revenue in general has also dropped off from the highs of 2013.

Yet TaylorMade’s first quarter reports revealed that net sales had turned the tide, rising by 4 per cent year on year. They’ve also made huge strides in the market for balls, while some cutting-edge new club releases since 2015 (whilst still respecting their bid to extend product lifestyles) have re-asserted their authority.

And then there is TaylorMade’s eclectic mix of brand ambassadors, with six of the world’s top 12 players under endorsement. And with one Tiger Woods added to the fray, it’s fair to say that they’re well placed to reel Callaway in a bit further with respect to share of voice.

So what now for TaylorMade? And the golf equipment industry?

TaylorMade – and indeed its compatriots – are definitely in capable hands. KPS Capital Partners manage over $5.3 billion in assets, spread across a range of industries, and to good effect. But it is a private equity firm at the end of the day, which means their sole priority is to make a profit. This, in turn, means that we can expect TaylorMade to be up for sale again in the not-too-distant future.

In some ways, it may not be a bad thing. The reality is that TaylorMade has been underperforming, so while you’d probably expect there to be ‘downsizing’ on the ground, some fresh ownership could well give it a new lease on life, with a new focus on innovation. Furthermore, you’d imagine that, with such a wide range of intellectual property, suppliers and manufacturers within the KPS portfolio, there’ll be plenty of scope for shared cross-sector efficiencies that could give TaylorMade – and, by extension, the consumer – a boost.

As for the golf equipment sector as a whole, it is difficult to fully digest or predict what impact the KPS acquisition will have. After a dreadful year last year, with Nike’s abrupt departure and several high-profile bankruptcies, the fear was that things were beginning to spiral.

But with Callaway and Acushnet reporting vastly improved first-quarter equipment earnings, and TaylorMade’s own upward momentum, things are beginning to look a whole lot better.

And hey, private equity firms know what they’re doing. So if they see value in having skin in the game within the equipment industry, there’s got to be a pretty compelling case for its overall potential, right? As ever, time will tell.

About the author  Michael Todt

Mike fell in love with the game from a very early age – a passion that hasn’t diminished ever since. He earned provincial colors throughout his junior years, but by the time he reached Varsity, the realization set in (thanks largely to some cold ales) that it was time to favor the pen rather than his clubs. He now writes for GA along with a few other sources.

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