Quietly last week, while Nelly Korda, Mone Inami, Lydia Ko and Aditi Ashok captured the consciousness of the golf world at the Tokyo Olympics, the TaylorMade Golf Company changed hands. A consortium of South Korean interests bought the company for roughly $1.7 billion (U.S).
TaylorMade began an auction in February led by investment bank Morgan Stanley. The seller, KPS Capital Partners, “killed it” in Wall Street vernacular, earning more than four times its investment of $425 million in 2017.
KPS, along with TaylorMade management, executed a remarkable turnaround. The company was put on the sales block in 2016 by then owner Adidas, the sporting goods conglomerate based in Germany that owned the company for 20 years. At the time, TaylorMade was thought to be losing money. And the overall golf economy was not uplifting. Nike, Adidas’ chief competitor in shoes and sports apparel, exited the golf equipment business in 2016, and retailer Golfsmith filed for bankruptcy that same year.
Many of TaylorMade’s wounds were self-inflicted. The company introduced too many products too quickly. A lack of disciplined product creation and rollout led to excess inventory resulting in heavy promotional activity and discounting at the retail level. The company’s market shares were in decline and its spending was out of line with revenues. Sales declined from roughly $1.7 billion in 2012 to less than $600 million in 2016.
While Adidas kept its golf brand, which competes in the footwear and apparel categories, executives sought to jettison TaylorMade.
KPS Capital Partners won the company with a bid of $425 million, some of which was contingent on performance.
KPS identifies itself as a firm that “transforms manufacturing and industrial businesses.” TaylorMade CEO David Abeles said that KPS “was a superb owner.”
The challenge for the new ownership group is the debt load. Nearly 70 percent of the financing is interest bearing …
The transformation, according to Abeles, rested on three key initiatives. First, KPS had to carve TaylorMade out from Adidas and build an entirely new infrastructure, an expertise KPS had from other transactions across many years.
Secondly, KPS brought state-of-the-art development, design and manufacturing expertise to bear, with an emphasis on improving the company’s supply chain.
Finally, according to Abeles, KPS “let TaylorMade be TaylorMade.” By this Abeles means that the owners were shrewd enough to add value where they could, but also to acknowledge the unusual nature of the game and business of golf, as well as the special culture the management team had created.
Under KPS leadership, TaylorMade also overhauled its marketing strategy. The company once paid exorbitant sums to players in order to be the “Number One Driver on the PGA Tour.” This was an expensive and not always precise investment. After 2017, the company paid a small number of top players to play all TaylorMade products, including a golf ball. In the beginning, this group included Dustin Johnson, Jason Day, Sergio García and Justin Rose. Day, García, and Rose would give way to Rory McIlroy, Tommy Fleetwood and, eventually, Tiger Woods.
TaylorMade also ceased payments to PGA Tour Champions and LPGA Tour players. And it greatly reduced investments in PGA of America on-course professionals.
The result was increased revenue and market share in all major categories. KPS has stated previously that the company was profitable in each year of its ownership.
Then came the pandemic, which proved to be a boon to the golf industry. A once-in-a-lifetime surge in participation took place globally in 2020, one that caught the manufacturing community off guard. That surge led to a dramatic rise in golf equipment sales in 2020 and it has continued into this year. This proved to be the perfect moment for KPS to seek an exit.
Centroid Investment Partners, a small private equity firm based in South Korea, was announced as the buyer on May 11. As can happen when creating a consortium, the deal got wobbly as summer wore on. Eventually, F&F, a prominent South Korean apparel maker founded by billionaire Chang-soo Kim, stepped up and provided the equity portion of the package, estimated to be $430 million. The deal closed in 90 days, which raised a few eyebrows given all of the regulatory approvals required.
The challenge for the new ownership group is the debt load and management fees. Nearly 70 percent of the financing is interest bearing, and the transaction sponsor, Centroid, typically charges a management fee. Debt interest takes precedence to capital expenditures and research and development, and this is an entirely new landscape for TaylorMade.
The buyers, with apparel expertise, view this category as a potential growth engine. In addition, industry observers believe that TaylorMade trails its leading competitors in e-commerce as well as international sales.
The current management team, led by Abeles, will remain in place.
Top photo: Rory McIlroy during the 2021 FedEx St. Jude Invitational (Dylan Buell, Getty Images)
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