Why Callaway’s Merger with Topgolf Makes Sense
Callaway and Topgolf are merging and will combine through an all-stock transaction. The deal assigns a total enterprise value of about $2.54 billion. Callaway first invested in Topgolf in 2006, and currently holds a 14% stake.
Why the merger makes sense: Despite the stock cratering nearly 20% the day following the announcement, analysts remain optimistic about the long-term opportunity that Topgolf can bring to Callaway’s traditional business.
Appealing to beginners: About 50% of Topgolf guests are non-golfers, and Jefferies analyst Randal Konik sees this as a way to reach a bigger audience.
“Topgolf provides ELY unique access to off-course golf, where participation growth has significantly outpaced that of traditional golf, likely a function of its broader demographic appeal and lower intimidation factor for beginners.”
Golf equipment: Topgolf has 63 venues (58 in the U.S. and 5 overseas) and had 23 million visits in 2019. Callaway will be able to leverage this off-course presence to sell Callaway-branded equipment. By 2022, the combined company is expected to reflect a revenue mix of 30% golf equipment, 46% Topgolf and 24% softgoods, according to Jefferies.
Golf’s big moment: Golf participation rates are booming thanks to social distancing requirements. Total rounds played this year in the U.S. are on track to grow 10 percent from a year ago, according to a recent report by the National Golf Foundation and Golf Datatech. NGF research also indicates that the number of golfers ages 6 to 17 could increase by as much as 20 percent this year. B. Riley analyst Susan Anderson sees Callaway capitalizing on the growing interest.
“We continue to believe that ELY will benefit from the uptick in golf interest and their merger with TopGolf will now allow ELY to access a larger base of potential golfers and at an early stage in their interest. We anticipate ELY to roll out their clubs and apparel at these locations to further help drive their revenue growth.”
