Callaway, Topgolf to Merge in $2 Billion Deal Meant to Propel Golf Venue Business

Callaway, a publicly traded golf company based in Carlsbad, California, has been an investor in Dallas-based Topgolf since 2006. The all-stock deal is expected to be completed in early 2021 with the number of shares being issued based on the implied equity value of Topgolf, which is about $2 billion, including the 14% of the business already owned by Callaway.

Topgolf, with 63 open-air venues and tech-enabled golfing equipment, generated about $1.1 billion in revenue in 2019 and has grown at a 30% compound annual rate since 2017. Even with the pandemic, Topgolf has opened all its venues, with sales recently reaching about 80% to 85% of its 2019 revenue, said Topgolf CEO Dolf Berle, adding the company has added dividers between golfing bays to ensure safety in the pandemic. Topgolf served 23 million guests last year with about 50% of those identifying as nongolfers.

The pandemic has also led to a surge of demand for golf, which Callaway’s CEO highlighted in a conference call with investors talking about the merger, saying it plans to report a record-setting quarter.

While golf’s popularity had been declining in recent years, the sport has had a pandemic-related bump in activity this year because it’s a socially distant outdoor activity. The number of U.S. rounds of golf played in August were up 20.6% from last year, breaking records set in June and July, according to a report from the National Golf Foundation, an advocacy group for the sport.

“We’ve long seen the value in Topgolf, and we are confident that together, we can create a larger, higher growth, technology-enabled global golf and entertainment leader,” said Callaway President and CEO Chip Brewer in a statement.

By joining the Callaway family, Topgolf will be able to leverage the strong golf brand, while strengthening the experiences created at the intersection of sports and technology, said Berle.

“We are still very much in the early stages in growth,” Berle said on the investor’s call Tuesday. “We believe there’s an ability to have 200 venues in the United States, which represents 10 years of growth opportunity ahead of us, and that’s just domestically.”

Topgolf has 33 venues under construction, contracted or under letter of intents, Berle added.

The combined company plans to spend $325 million in capital expenditures in the next few years using funds on hand, with Callaway having more than $630 million in available liquidity and Topgolf having more than $200 million in cash, executives say.

Topgolf has also just begun its international expansion, with a targeted market of having 255 venues abroad with only 2% of those locations accounted for so far. To do this, Topgolf will rely on a franchise model with each venue contributing about $1.1 million in revenue each year. Berle said the company is looking to expand in Monterrey, Mexico, the United Kingdom and Dubai in the near term.

Topgolf’s business unit for its ball-tracing technology used at its ranges has seen revenue growth of 233% in the last three years. Topgolf also has built a strong digital presence with its mobile golf game, called World Golf Tour, which had 28 million members as of the end of 2019.

Along with Callaway, Topgolf’s ownership group includes Providence Equity Partners, WestRiver Group and Dundon Capital Partners. The other owners support the merger, with the group adding in a written statement this was a “natural combination,” bringing together two complementary businesses at the center of one of the most dynamic sports and entertainment experiences available today.

Combined, the companies are expected to have a diversified revenue mix, including 46% tied to Topgolf venues, 30% devoted to golf equipment, and 24% tied to retail soft goods.

Upon the closing of the merger, the combined company will have 13 directors on its board with three appointed by Topgolf shareholders. Brewer will continue to lead the combined company as president and CEO. John Lundren will continue in his role as chairman of the board with the combined company, with Erik Anderson serving as vice chairman.

For the Record

Goldman Sachs & Co. served as Callaway’s financial adviser, with Latham & Watkins serving as the company’s legal counsel. Morgan Stanley & Co. and J.P. Morgan served as the financial advisers to Topgolf, with Weil, Gotshal & Manges serving as legal counsel for the company.

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