Amid all the negativity surrounding the golf industry, some of the biggest news for the sport broke last week. Golf equipment manufacturer and leader Titleist announced its plan to move forward with an IPO, expected to launch later this year. Acushnet (Private:ACNT), the parent company of Titleist and FootJoy, announced the IPO, expected to raise more than $2 billion.
The golf industry is about to undergo some massive restructuring. Last month, it was announced Adidas (OTCQX:ADDYY) is moving forward selling its golf segment, including TaylorMade, one of the biggest equipment brands in golf. Some top analysts have been down on the golf equipment business and have advocated steering clear of the industry.
Acushnet produced more than $200 million in EBITDA in the past 12 months and has been working with investment banks JPMorgan Chase (NYSE:JPM), UBS Group (NYSE:UBS), and Nomura for the IPO. Acushnet also owns FootJoy, a leader in the golf shoe space.
Despite the struggling golf equipment industry, the Acushnet IPO suggests the golf ball and apparel market remains strong amid weak golf club sales. Titleist has been the No. 1 ball in golf for decades; golf balls and shoes are considered consumable goods with a much higher turnover sales rate than golf clubs, which are considered durable goods.
The heyday of golf club innovation we experienced in the late '90s and 2000s has slowed considerably. It was during this time that the landscape of golf was changing quickly, with Tiger Woods leading the charge. The innovation of the golf club market was substantial at the time, with rapidly expanding driver heads and irons that were much more forgiving for the casual player. Golf club manufacturers pushed the USGA and R&A limits on golf club innovation.
The Number 1 Ball in Golf
The golf ball market continues to remain strong, however, and Titleist has been the undisputed leader. The company revolutionized the game with the Pro V1 model that launched nearly 16 years ago. The Pro V1 still remains the most elite ball in golf. The golf ball market may have played key a role in Titleist deciding to go public. In a recent interview, Callaway Golf Co. (NYSE:ELY) CEO Chip Brewer said that the golf ball provided the greatest potential for growth in the near term for his company:
The golf ball has the greatest absolute percentage growth potential. We made money in golf ball for the first time in 2013. Now we're starting to see nice growth, we're #2 in the category.
While other companies, like TaylorMade and Callaway, have made big steps to compete in the golf ball marketplace, it is highly unlikely that anyone takes the No. 1 spot from Titleist.
The golf equipment industry is an $8.7 billion business, with the US accounting for 41 percent of sales, while Japan and South Korea were second and third in sales with 24 percent and 7.1 percent, respectively. Callaway Golf did $843 million in revenue in FY2015, with golf club sales declining 7% Y/Y, while its golf ball segment increased 4%. Net sales for Callaway actually increased in North America, but declined in every international segment. Nike Golf brought in $771 million in FY 2015.
The Titleist IPO will be an important gauge of the golf industry as a whole, and will be the second major golf brand to be traded publicly along with Callaway Golf Co. Callaway stock has been performing well this year, and it has successfully diversified its business with a key stake in Top Golf, a growing golf entertainment venue that launched its flagship location on the Las Vegas strip this month.
With golf re-entering the Olympics this year in Brazil, it will be a big opportunity to increase its exposure internationally and attract a fan base that may not otherwise be exposed to the game.
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