The Adidas Group has finalized an agreement to sell TaylorMade Golf for $425 million to KPS Capital Partners, a U.S. private equity firm. Adidas bought the company in 1997 as part of its acquisition of Salomon, the French ski equipment maker, at a price equivalent to about €1.2 billion for the entire French group.
The entity to be sold includes Ashworth, a golf apparel brand acquired in 2008 for $72.8 million, and Adams Golf, another equipment brand purchased in 2012 for $70 million. But it excludes the Adidas Golf division that sells Adidas-branded golf apparel, footwear and accessories, which is to be integrated into the Heartbeat Sports entity of the Adidas Group. It comprises categories ranging from outdoor to tennis and various other sports.
KPS Capital Partners is to pay half of the $425 million in cash, and half in a combination of secured notes and contingent considerations. The deal is expected to close later this year and Adidas said it will book a charge ranging from a high double-digit to low triple-digit millions of euros as part of the sale.
KPS is a New York-based private equity firm that manages more than $5.7 billion in investments. David Abeles, the chief executive of TaylorMade since March 2015, is to remain with the company. He said in a statement that TaylorMade would continue to focus on performance-driven golf equipment and that it was poised to benefit from the new owner's strategic vision, operational resources and access to capital. It remains unclear what the group's intentions are with regard to the Ashworth and Adams Golf brands.
TaylorMade Adidas Golf (TMAG) enjoyed a prolonged growth spurt for about six years, as its sales soared from €804 million in 2007 to €1,344 million in 2012. In the same years, TaylorMade surpassed its leading rival, as Callaway's turnover shrank from $1,125 million in 2007 to $832 million in 2012. But since then, TaylorMade has retreated and Callaway chalked up sales of $871 million last year.
The TMAG entity generated a turnover of €892 million last year, down by 1 percent from 2015, but this was due entirely to declines at Ashworth and Adams Golf, while the TaylorMade brand raised its sales with the launch of the popular M series of irons and drivers. The Other Business unit in the Adidas group, which includes TMAG as well as CCM Hockey and some other entities, raised its gross margin by 3.6 percentage points to 37.5 percent in 2016. The operating loss of €89 million in 2015 was reduced to €14 million in 2016.
TaylorMade has continued to invest in products and endorsement deals – most recently adding Rory McIlroy to a list of partners that already includes Dustin Johnson, Sergio Garcia, Jason Day, Justin Rose and Tiger Woods, among others.
The golf market has been suffering from a decline in the number of rounds played in many markets, as well as overly abundant product launches that caused a glut in the market about three years ago. The sport has also struggled to attract younger players. Golfsmith, a leading U.S. golf retailer, went into bankruptcy. The Nike group decided last year to terminate its golf equipment business.
Founded in 1997 and established in Carlsbad, TaylorMade went through several restructuring measures in the last two years. Ben Sharpe, the company's former chief executive, stayed in the job for just over a year before being replaced by Abeles.
The performance of the TMAG division improved markedly in the first quarter of this year. The entity's turnover was up by 4 percent in constant currencies, which was chiefly attributed to the TaylorMade brand, while Adams Golf, Ashworth and Adidas Golf saw their sales slip in the three months, due to the timing of product launches. The Other Business unit raised its gross margin by 3.8 percentage points to 40.8 percent for the quarter and its operating profit margin jumped by 8.1 percentage points to 7.9 percent, with strong improvements at TMAG.
After a strategic review led by Guggenheim Partners, the Adidas Group announced in May 2016 that it intended to sell off most of its golf division, as part of its efforts to streamline its operations. After the appointment of Kasper Rorsted as chief executive in October, the company added in March that it intended to divest CCM Hockey. It previously sold off Rockport, the footwear company it acquired together with Reebok in 2005.
However, Rorsted reiterated as part of the group's annual general meeting this month that it had no intention of divesting Reebok in the short term, while measures to improve the brand's performance are underway. Last November the Adidas group announced Muscle Up, a program intended to improve Reebok's performance, focusing on the U.S. market. This entailed an acceleration in U.S. store closures as well as a move away from Reebok's head office in Canton and a structural change that puts an end to the joint-operating model between Adidas and Reebok in North America. Rorsted made it clear at the time that Reebok would have to pull its weight in the Adidas group, particularly in terms of profit margins, but he did not set any deadlines.
Rorsted reiterated at the group's general shareholders' meeting earlier this month that the company is comfortable with the strategic position of the Reebok brand and confident that the measures will pay off, and therefore will not sell it (at least for the time being).
Rorsted said on the same occasion that there were several interested parties for the CCM Hockey business. The ice hockey brand saw its sales decline by 7 percent to €35 million in the first quarter, down by 11 percent in constant currencies. Sales from CCM's licensed apparel business dropped, due to the transition of the partnership with the National Hockey League (NHL) to the Adidas brand, and equipment sales were lower as well.
