Titleist: Buy or Sell?

It looks like one of golf’s few remaining privately held companies is about to cross over to the dark side.

As was reported by Reuters yesterday, Acushnet (parent company to both Titleist and FootJoy) has hired Solebury Capital to advise on a potential IPO estimated to be worth something in the neighborhood of 1.8 billion dollars.

In It For the Short Haul

When Fila acquired Acushnet many casual observers assumed it was the latest incarnation of the adidas play. You know…big apparel brand buys an established company in order to get its foot in the golf industry’s door. adidas, PUMA…toss in frequent Under Armour rumors and the ubiquitous Nike, and the trends reveal that apparel brands are steadily becoming the golf equipment industry’s overlords.

Fila certainly seemed to fit that model.

As it turns out, however; while Fila likely owns the largest individual chunk of Acushnet, it was never in alone. Whether it was simply a matter of capital on hand, or to minimize individual risk, Fila has partners. Several other private equity firms own pieces of Titleist’s parent company. That little detail alone suggests that Fila likely never had any designs on being a serious player in the golf equipment industry. For Fila and friends, Acushnet was an investment property, and now, it appears, it’s time to cash out.

What Becomes of Titleist?

Fair or not, some of what has led to the current state of industry is being blamed on the very nature of publicly traded companies. As we’ve heard it told, the constant need to appease shareholders though unsustainable growth, and exponential increases in year over year returns, is the reason why companies like adidas (TaylorMade) and Callaway have accelerated releases, made rapid discount cycles the norm, and in the process, devalued their brands (and the consumer’s eBay resale value).

Some believe the equipment industry’s struggles can be traced directly to the need to answer to shareholders.

Like PING, Titleist’s privately held status is, in the eyes of some, one of the primary reasons why the company has been able to not only sustain, but steadily grow profits, without resorting to one year (or less) release cycles. Being privately held is one of the reasons why Titleist is able to be Titleist. Worth mentioning, having its logo on the ProV1 doesn’t hurt either.

With Acushnet prepping for an IPO, and given what we’ve seen from adidas and Callaway – brands that have done anything and everything to satisfy investors – many are already starting to wonder if a move to the publicly traded world will fundamentally change what it means to be Titleist. Its competitors have clearly felt pressured to do whatever it takes to grow profits; at times to the detriment of the larger industry and the consumer.

Can Acushnet avoid the same trap?

Buy or Sell Titleist?

It’s easy to argue against investing in any golf company right now. For most, profits are down. The game is in decline. Governing bodies are doing nearly everything they can to stifle innovation, and as senior golfers shuffle off this mortal coil, millenials are largely disinterested in filling the gap. When you’ve got an iPhone and a lacrosse stick, what do you need with golf? American golf (and the geography matters) is a game that has not yet found its new bottom.

On the flip-side, Acushnet may be the safest gambit in golf…maybe the only safe gambit. The company’s management has proven it knows how to run a golf company. The brand brings to the table consistent (though not meteoric) growth, reliable profitability, and with the ProV1, what must certainly be the single most valuable asset in all of golf. Toss in the steady – and at times industry leading – performance of the FootJoy brand, and even with the overall golf market in a downturn, Acushnet should get plenty of looks.

Buy or Sell?

As an investor, would you put your money behind the Acushnet brand?