No Laying Up: Callaway Golf agrees to pay $2.6 billion for Topgolf Entertainment Group

November 23, 2020

3 min read

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What's going on here?

Callaway Golf agreed to buy the rest of driving-range operator Topgolf Entertainment Group in a move that will bring a company known for its golf equipment into the fast-growing sports-entertainment business.

What does this mean?

Callaway Golf and Topgolf Entertainment Group announced on Tuesday 27 October that the companies have entered into a merger agreement. California-based Callaway agreed to pay $2.6 billion for the Dallas-headquartered Topgolf. Under the terms of the agreement, Callaway and Topgolf will combine in an all-stock transaction creating a global golf and entertainment leader.

Upon completion of the merger, Callaway and Topgolf shareholders will own approximately 51.5% and 48.5% respectively of the combined company. Topgolf – which owns ball-tracking technology Toptracer and mobile app World Golf Tour – will join Ogio, Travis Mathew and Jack Wolfskin under the Callaway brand.

Callaway first invested in Topgolf in 2006, then upped its stake to 14% in 2018. Now, it’s buying the whole thing because, according to Callaway CEO Chip Brewer, “these businesses just make sense together”. The transaction is expected to close in the first quarter of 2021, subject to meeting customary closing conditions.

What's the big picture effect?

Despite the fact that Callaway’s shares fell 18% the day after the merger announcement, Brewer seems pretty pleased with the merger. He said, “Topgolf is the best thing that happened to golf since Tiger Woods and it’s going to be the biggest source of growth for our industry”. But is it a risk betting on Topgolf in the wake of the pandemic?

Critics of the merger suggest that Callaway is taking a risk because there is no guarantee that consumer behaviour will return to pre-pandemic norms. However, Callaway and Topgolf both delivered strong financial results immediately before the pandemic and have since recovered ahead of expectations, suggesting that the industry is far from a lost cause.

For Callaway, traditional golf has had a renaissance as people seek out socially distanced ways to socialise. The National Golf Foundation reported that August golf rounds in the US were up 20.6% nationally year-over-year; a new record for the biggest increase in a peak season month since Golf Datatech began tracking rounds two decades ago. As a result, Callaway expects to post a record third-quarter revenue of $476 million, up 12% from the same quarter last year. 

Like many entertainment facilities, Topgolf has managed to adapt their business to the new pandemic rules. Its driving ranges feature outdoor safely-spaced hitting bays, with social distancing markers displayed throughout common areas and regular cleaning of the venue throughout the day. Consequently, Topgolf CEO Dolf Berle has reported that venues worldwide have reached 85% of last year’s visitor counts in recent weeks.

Going forward, the future for Callaway and Topgolf could be extremely prosperous. Callaway said the combined companies’ EBITDA (earnings before interest, taxes, depreciation and amortization) could hit $1bn in the next 10 years, up from less than $200m currently. Furthermore, they have the potential to tap into new markets, 51% of the people who went to a Topgolf facility last year identified themselves as a non-golfer, but 75% of those people said that after visiting Topgolf, they were interested in playing golf on a course. If Callaway can develop a relationship with customers as they are discovering the sport and learning to love it, it has a better chance of turning those people into Callaway loyalists.

Report written by Thomas Farrell

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