[Insight] The Private Equity Fund's Private Passion for Golf

[Asia Economy Reporter Lim Jeong-su] A strong investment wave is sweeping through the golf industry, including golf courses and golf equipment companies. Corporations with financial power and private equity firms (PE) are eagerly seeking golf-related assets to invest in. The golf industry is experiencing an unprecedented boom as the golf population has exploded due to difficulties in traveling abroad caused by COVID-19.

Asia Economy’s exclusive report on the 11th about ‘Centroide PE’s acquisition of TaylorMade’ is considered the largest global M&A case in the golf sector. On the 10th, Centroide PE signed a Stock Purchase Agreement (SPA) to acquire 100% of TaylorMade shares from the current major shareholder, the U.S. investment firm KPS Capital. The acquisition amount approaches $1.7 billion (approximately 1.9 trillion KRW). This breaks the record for the largest M&A in this field in seven years since Fila Korea and Mirae Asset PE jointly acquired Acushnet (Titleist) in 2014.

The corporate value of the golf industry is also on the rise. KPS Capital acquired TaylorMade from its previous major shareholder Adidas in 2017 for $425 million (approximately 470 billion KRW). This means they sold the stake to a domestic PE at more than three times the price.

Centroide PE believes that although the price seems somewhat high, there is sufficient potential to further increase the price. TaylorMade’s sales are expected to grow from around $500 million in 2015 to about $1 billion this year. During the same period, its market share in golf equipment increased from 17% to 23%. Earnings before interest, taxes, depreciation, and amortization (EBITDA) are projected to rise from 126.5 billion KRW last year to 150 billion KRW this year.

If a strategic investor (SI) is secured domestically to boost sales in golf equipment and golf apparel, further corporate value appreciation can be anticipated. Subsequently, value realization is expected through the sale of controlling shares or an initial public offering (IPO). This strategy is similar to how Fila Korea increased Acushnet’s corporate value and then listed it.

The acquisition finance market is also thriving. Before entering the final bid for TaylorMade, Centroide PE selected Yuanta Securities, ShinYoung Securities, and Hana Financial Investment as financial advisors. Saemaeul Geumgo Central Association is reportedly participating in subordinated equity and mezzanine (subordinated debt) investments. According to the M&A industry, acquisition finance arrangement fees range from 1.5% to 2%. Applying this to the acquisition price, the financial advisory fee income alone amounts to 29 billion to 38 billion KRW.

If Centroide PE recruits strategic investors (SI) to acquire partial shares and expand the business, a strong love call from domestic companies is expected. Candidates for SI include large retail companies owning department stores, companies with apparel brands, tire companies involved in golf ball business, and Kakao, which is expanding its golf industry presence.

Currently, Majestic Golf, a golf equipment company in Korea and Japan, is also on the market. Orchestra PE acquired 100% of Maruman Korea (now Majestic Golf Korea) shares and 29% of Maruman’s Japanese headquarters (Majestic Golf) shares from Cosmo Group in 2017 for about 78.3 billion KRW. The current asking price is reported to be between 200 billion and 300 billion KRW, meaning the shares are being sold at 3 to 4 times the price in just over four years.

Golf course transactions are also active. Earlier this year, Centroide PE acquired 100% of the shares of the premium golf course ‘South Springs Country Club (South Springs CC),’ previously owned by the BGF Group and the Samsung Group owner family. The 18-hole golf course was acquired for about 190 billion KRW, setting a record for the highest price per hole (approximately 9.6 billion KRW). The price per hole, which was around 3 billion KRW just before the COVID-19 outbreak, has recently jumped to about three times that level.

Striker Capital acquired the 18-hole public golf course Paganica CC for 95 billion KRW at the end of 2021, and Club Mow CC, a 27-hole golf course put up for sale by Doosan Heavy Industries for financial improvement, was sold to a Hana Financial consortium last year for 180 billion KRW. CJ Group, which owns about two golf courses nationwide (Nine Bridges), recently expressed interest in acquiring a public golf course in the Gyeonggi Province area.

An investment banking industry official said, "The operating profit margin of public golf courses recently approaches 30% to 40%," and predicted, "The vitality of the golf-related industry investment market will continue for the time being."