Why TaylorMade's new owner got a great deal

Adidas is finally selling TaylorMade Golf, and the new owner appears poised to make millions off the deal. 

KPS Capital Partners, a private equity firm, had been discussing an acquisition with adidas since the German sportswear maker announced it was seeking a buyer 18 months ago. Adidas wanted out of hard goods, so it could focus on apparel, and TaylorMade's fortunes had turned sour in the past few years. 

KPS will acquire TaylorMade for $425 million, half of which will be paid in cash and the rest in secured notes and contingent considerations. While those contingencies could increase the value of the sale, it is still a far cry from the $1.7 billion in revenue the company logged in 2012. But the company has been losing money.

Adidas bought TaylorMade in 1997 as part of a $1.4 billion acquisition of Salomon S.A. At that time, the company did less than $350 million in annual revenue. But sales took off after it hired Mark King as CEO in 1999. King’s aggressive marketing approach helped it become the top driver manufacturer in 2005, and sales continued to increase until King left TaylorMade in 2014. He was promoted the president of adidas Group North America.

Since then, the TaylorMade brand has been in a free fall, with revenue dropping to $1 billion in 2015. Revenue stabilized in 2016, and the new owners said they plan to keep David Abeles as CEO and president.

KPS Capital Partners is a private equity firm that specializes in manufacturing companies. It has been recognized for several deals by industry trade publications, including its 2014 acquisition of Anchor Glass Container. The glass manufacturer was acquired for $435 million and KPS turned its finances around by cutting expenses and refocusing its market. It sold it the business in less than three years.

TaylorMade can expect a similar approach. Most experts predict KPS will focus TaylorMade on its core business. The company, which bought Ashworth for $72.8 million in 2008 and Adams Golf in 2012 for $70 million, has seen both brands languish, and some expect the brands to be sold.

KPS appears to have acquired TaylorMade at the right time. Nike exited the industry a year ago, after dropping below $700 million in revenue. That helped TaylorMade land Rory McIlroy as its latest spokesperson, which it announced just 24 hours before the sale. Also, Callaway’s current market capitalization is $1.24 billion. 

“When you look at where things were with this deal 18 months ago, I think all of those indications would say that the private equity firm got a pretty fair deal,” Brad Morehead, who teaches finance at Northwestern University’s Kellogg School of Business, told GolfWorld.

Adidas said the sale should conclude later this year. It will "record a nonoperational negative P&L impact in the high-double-digit to low-triple-digit million euro range, which will be reported in discontinued operations as part of the company’s 2017 results."




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