Callaway takes over Topgolf in $2 billion stock deal

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Callaway Golf (NYSE: ELY) is buying Topgolf Entertainment Group for shares valued at approximately $2 billion which includes the 14% Callaway previously owned. The purchase places Callaway, already the largest golf equipment manufacturer, in the forefront of the golf entertainment business and appears to be a dynamic match for these two leaders of their respective business segments.

Topgolf has 63 worldwide locations featuring its proprietary technology golf games with food and beverages that create a destination social experience for visitors. Open-air hitting bays are climate-controlled and according to the company in 2019 had over 23 million guests of which more than were 50% non-golfers. Topgolf’s Toptracer technology is well known to golf fans for its use in PGA TOUR telecasts and is being used by 7,500 driving range bays growing by 233% in the last three years. Also, Topgolf’s World Golf Tour mobile golf game has 28 million players competing on interconnected digital and live platforms.

The logic behind the purchase would seem to be that Callaway gains another non-equipment business with growth potential. Callaway, in addition to the eponymous club and ball business, owns Odyssey putters, luggage maker OGIO and apparel companies Jack Wolfskin and Travis Mathew. After the deal is completed Callaway revenue mix will be 30% from golf equipment, 46% Topgolf and 24% apparel/soft goods.

The large number of non-golfers who visit Topgolf will be a prime marketing target for Callaway equipment and Topgolf gains access to a ready source of cash to pay for further expansion.

Health precautions due to the pandemic resulted in a sharp increase in those participating in golf with a corresponding jump in Callaway’s club and ball sales. Third quarter 2020 revenues were strong hitting $476 million, a 12% increase over the same quarter in 2019, accompanied by a 67% increase in Non-GAAP earnings per share.

Looking at the combined Non-GAAP financial results for Callaway and Topgolf at the end of 20019 shows $2,761.0 million revenues–Callaway $1,701.1 million and Topgolf $1,059.9 million. Net income would have been a loss of $35.5 million with Callaway at $79.4 million and Topgolf losing $114.9 million.

The projection for the fiscal year ending December 31, 2022 after two full years of combined operations is $3,202.6 million in revenue and $360.0 million in profit prior to deductions for interest, taxes, depreciation, amortization, non-cash stock, non-cash rent and non-recurring expenses.

Commenting on the purchase and growth possibilities Chip Brewer, Callaway’s president and CEO, said, “Together, Callaway and Topgolf create an unrivaled golf and entertainment business. This combination unites proven leaders with a shared passion for delivering exceptional golf experiences for all – from elite touring professionals to new and aspiring entrants to the game. We’ve long seen the value in Topgolf and we are confident that together, we can create a larger, higher growth, technology-enabled global golf and entertainment leader. Callaway’s strong financial profile will enable the combined company to accelerate innovation, develop exciting new products and experiences, and create compelling value for shareholders, while providing the dedicated teams of both companies more opportunities to showcase their talents and complementary capabilities.”

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Ed Travis

Ed Travis is a national award winning golf journalist and has had a life long love affair with the game. He has competed in tournament golf both as an amateur and as a senior professional and though his competitive days are behind him he still plays regularly and carries a handicap of 2. He and his wife live in suburban Orlando.