Callaway Golf Company announced that it will acquire TravisMathew, a "high-growth golf and lifestyle apparel company," for $125.5 million in an all-cash transaction, subject to a working capital adjustment, according to the company.
The acquisition is subject to customary closing conditions including regulatory approvals, and is expected to close in the third quarter of 2017, according to a company press release. Post-acquisition, TravisMathew will continue to operate out of its Huntington Beach, Calif. headquarters.
Also last week, Callaway reported consolidated second quarter net sales of $305 million, up 24% from $246 million in the same quarter last year, reflecting an increase in net sales in all operating segments and in all reporting regions. Foreign currency negatively impacted international net sales by $4 million in the quarter. Q2 gross margin was 48.7% up from 45% in the prior year, beating company expectations, executives told analysts, according to a transcript from Seeking Alpha.
Golf retail has struggled in recent years amid stiff competition and fading popularity, at least among less fervent aficionados of the game. Earlier this year, Adidas agreed to sell its TaylorMade, Adams Golf and Ashworth golf brands for $425 million, and last year, Golfsmith sold itself to Dick's Sporting Goods through bankruptcy and Nike threw in the towel on its golf equipment business.
Callaway has suffered some of the same headwinds, but rebounded by focusing on performance gear (most famously its Big Bertha drivers) and reducing the need for discounts. "[M]arket conditions vary on a global basis, but I believe the overarching theme is one of improving industry fundamentals," CEO Oliver G. Brewer told analysts last week, according to a transcript from Seeking Alpha. "The European market has been strong this year. And in the U.S., there are clear signs of more stable conditions, thanks to a reduction in field inventory and a healthier retail channel."
Average selling prices have been increasing, product life cycles have lengthened and the company has had less unplanned promotional activity, he also said. "I am pleased with the trends and believe that the market corrections we have worked through over the last few years will benefit the industry in the long run."
The TravisMathew deal allows Callaway to add an apparel lifestyle brand that Brewer says "fits well with our business, brand and culture." The deal will provide revenue growth and enhance gross margins, operating margins, EBITDA and free cash flow, with synergies in brand development, operations, distribution, growth in golf channels and international presence, he said.
Confidence in the TravisMathew team, which Callaway executives got to know well prior to the deal, led to the decision not to fully merge operations, but to run TravisMathew as an independent brand and subsidiary. "They have been growing at double-digit rates and we believe are well positioned to continue on this path," Brewer said. "The vast majority of their current revenue comes from inside the U.S. and primarily in golf distribution channels. We believe there is ample growth opportunity in these channels, as well as significant potential outside of the U.S. and outside of golf-specific product and channels."