Equipment

Complex Package

Acushnet Golf may seem like an attractive purchase, but it won't be a simple one

Acushnet Golf is unlikely to be bought by another golf company.

Related Links

By Mike Stachura and E. Michael Johnson

Photo by Scott Halleran/Getty Images

December 9, 2010

The news that Fortune Brands is looking to sell its golf division, Acushnet Golf, has sparked rampant speculation about who or what entity might swoop in to purchase one of the most successful golf companies in the history of the game.

Acushnet, with an estimated $1 billion in annual sales, encompasses the Titleist, FootJoy and Pinnacle brands and is home to the indisputable leaders in golf balls, golf footwear and golf gloves, and a legitimate force in just about every other golf equipment category that matters. It is a mighty attractive package, given its leadership positions in several categories, its dominance on the professional tours and a streamlined, but revitalized, club business that owns an unmatched presence at on-course golf shops nationwide. But despite the speculation running rampant across the blogosphere, what's not likely to happen is Acushnet being purchased by another golf company. Here's why:

First of all, the announcement by Fortune Brands doesn't necessarily guarantee that it will sell Acushnet Golf. It could simply leave it as a separate entity, which is the technical meaning of "spin off." That certainly makes it easier to sell Acushnet, which is the primary motivation of the corporate raider Bill Ackman, who owns 11 percent of Fortune Brands shares and initiated the Fortune Brands split-up talk two months ago. Still, the selling of Acushnet to another golf company, as appealing a prize as it might be, isn't likely.

First up, the price. This isn't going to be a situation like when Callaway purchased Top-Flite in 2003 for what amounted to a 1987 Scirocco with four decent snow tires. Top-Flite was a dying brand with only one meaningful asset: Its golf-ball patent portfolio. Callaway wanted it, bought it and used it well, but mostly because it didn't cost that much ($179 million). The swallowing of Cleveland by Japanese sports (and rubber) giant Sumitomo two years ago for $132.5 million was even less of an event. Acushnet Golf is more than a mouthful for several reasons. Its Titleist brand is arguably the most important brand in golf. It exudes a status that transcends the technological sophistication of its products. Among golf's intelligentsia, it simply matters more than any other brand. But more importantly, Titleist has real profits and real dominance in the marketplace. Its EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is approximately $120 million and historically sporting goods transaction multiples are between six and eight times EBITDA. Acushnet being an industry leader would seem to command the high end of that so let's start the bidding at $1 billion. Or possibly beyond.

Those are real dollars that could be better spent on your own business, whether you're Nike, Srixon, TaylorMade or Callaway (Nike and Callaway were contacted for this story but declined comment), so it is highly unlikely a golf company is going to spend that money to buy a brand whose leadership positions they've all been eating away at over the last five years. Plus, you're probably talking at least a decade to make up your investment, which in the 21st century might as well be an eon. In other words, this is an unacceptable amount of time to wait for the check to clear.

History also tells us this scenario is unlikely. In the last 25 years there have been 15 notable acquisitions in the golf industry. In 12 of the 15 cases, the acquired company and its brands were soon eviscerated. Not a promising history of sales and profit retention. In other words, there's only so many Callaway/Odyssey and Acushnet/FootJoy deals that work. Financially and, in some cases, culturally, these types of incestuous acquisitions usually don't work.