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Home Inside TaylorMade's deal to buy Adams Golf

TaylorMade’s acquisition of Adams Golf has a few people in the industry scratching their heads. On the surface, it appears that TaylorMade is the hot brand these days, thanks to consumer acceptance of its white metal woods. Fourth quarter revenues grew by 17% last year and it surpassed the 1 billion EURO mark for the first time. Going off its parent company’s, adidas, reports, TaylorMade grew itself organically by more than 100 million EURO in 2011. Adams Golf’s 2011 sales will add another $96.5 million (2011 sales) to the pile and anything else it can find in 2012 under its new owners.

Only time will tell how big it can turn its net $70 million investment (approximately EURO 53 million) in Adams Golf into. TaylorMade reported it would pay $10.80/share, which would value the transaction at $86.4 million. Its believed that backing out the existing cash on hand that it inherits with the purchase of Adams Golf, lowers the total outlay to $70 million.

In 2011, Adams earned a net profit of $6.7 million (after one time inclusions), so its conceivable that TaylorMade could potentially see a double digit return on its initial investment without too much changing. Based on its $70 million spend and $6.7 million net profit, it represents a 9.57% yield. There will be cost savings to be found with merging the company under the TaylorMade umbrella and sadly some redundancies likely as well, in order to improve the expense structure that influences the bottom line and enhances the return on investment. However, the implied rate of return isn’t in the neighborhood of the 17% it reported in the fourth quarter or the 15% with the assistance foreign exchange rates it said it grew by for all of 2011. That was before its Rocketballz products invaded retailer shelves and television commercial interruptions.

If anyone is looking to handicap a winner for this transaction, it’s clearly the CEO of Callaway Golf. Chip Brewer left Adams Golf at the end of February and when he departed Plano, TX, for Carlsbad, CA., he was in possession of 10.5% of the Adam’s common stock, according to Securities and Exchange filings. After 18 days in his new position at Callaway, Brewer’s take from the sale of his shares before Uncle Sam wants his cut, is $9,097,920. Meanwhile, he still has skin in the game by virtue of his employment contract at Callaway Golf.

TaylorMade commercials featuring George Thorogood’s “Who Do You Love,” blasting its 2012 theme song are intended to resonate with future buyers of its drivers. But its safe to say there are a few others (Adams’ shareholders) that are feeling its love, at least temporarily this week.