Star power, supply chain control and a pandemic golf boom turned KPS Capital’s $380 million investment in golf club maker TaylorMade into $1.7 billion.
Jiger Woods watched the 18and hole at Augusta National, one tee shot away from winning the 2019 Masters. His caddie, Joe LaCava, handed Woods a club. It was a three wood made by TaylorMade.
Woods scratched his ball down the fairway. Minutes later, cheered by a cheering crowd, he landed a two-foot putt to close out a comeback win that many thought would never come. It was a moment that instantly became golf legend, a triumph after years of injuries and personal struggles.
It was also a time that had a little help from private equity.
Woods won the tournament not just with his three TaylorMade woods, but with a whole bag full of TaylorMade clubs. Woods signed an estimated $10 million-plus-a-year sponsorship deal with the San Diego-based company in 2017, a move that was part of a much larger strategic shift at TaylorMade. This shift was backed by the financial and operational strength of KPS Capital Partners, a Manhattan-based private equity firm with a history of turning around struggling companies in cog industries.
When KPS bought TaylorMade in 2017 for $380 million, the company was losing $80 million a year. Last year, when the company sold TaylorMade for $1.7 billion, the company’s annual profit was nearly $200 million. Meanwhile, the golf equipment industry experienced a renaissance and KPS helped TaylorMade rebuild its business. TaylorMade brought the golf know-how. And KPS brought its expertise in supply chains, manufacturing and business transformations.
KPS declined to comment on its financial performance. But according to Forbes’ estimate, the company recorded a profit of $1.5 billion on the sale of TaylorMade, good for a return of almost 9 times – the type of multiple more generally associated with the world of equity – risk-to-risk and reward than to the buyout business.
“Honestly, we couldn’t have asked for a better experience,” says TaylorMade CEO David Abeles. “We have built a great business together.”
JaylorMade was previously owned for 20 years by German sportswear giant Adidas. But by the mid-2010s, the golf industry had begun to fade. Adidas and Nike pushed aggressively into the space at the turn of the century, believing that Woods’ emergence as a global phenomenon would lead to a protracted boom. Once Woods’ personal life started generating more headlines than his golf game, the two powerhouses changed course. Nike shut down its golf equipment business in 2016. That same year, Adidas put TaylorMade up for sale.
“They were in cleaning mode,” says Susan Anderson, golf industry analyst at B. Riley Financial. “Everyone has moved on.”
David Shapiro, 60, is a managing partner of KPS who co-founded the company in 1997. When he first heard that TaylorMade was on the block, he was intrigued, and not just because Shapiro is a lifelong golfer. On the face of it, Shapiro thought TaylorMade might be right in the wheelhouse of KPS as a holding company. The company specializes in manufacturing, corporate splits and corporate restructurings. TaylorMade ticked all three boxes.
But once the due diligence began, Shapiro was appalled.
“I was kind of amazed at what the company looked like,” Shapiro says. “They have a very established brand. They have a bunch of [pro golfer] sponsorships. So you think everything is probably fine. And then you looked at the numbers.
Everything, it turned out, was not OK. Revenues were plunging and red ink was piling up. In 2013, the largest golf company TaylorMade and Adidas approached $1.7 billion in sales and earnings of around $100 million. By 2016, sales had dropped to $982 million and the company recorded a loss of nearly $100 million.
As Adidas prepared to sell the underperforming unit, they brought in new leadership. David Abeles became CEO of TaylorMade in 2015, his third distinct stint in various leadership roles at the company over a two-decade span. He immediately began a pair of difficult tasks: figuring out where it all went wrong and deciding who would be the best buyer to right the ship.
A host of other private equity firms scoured TaylorMade during a protracted sale process. But Abeles says KPS “has always been our number one choice.” TaylorMade was not interested in cosmetic changes or financial engineering to reshape its balance sheet. He was looking for a partner with manufacturing roots who could help create the kind of real operational change that Abeles believed was needed.
That’s what TaylorMade saw in KPS. What KPS saw in TaylorMade was a temperamental company that had the chance to gain traction over publicly traded rivals Acushnet (which owns Titleist) and Callaway. In May 2017, after more than a year of negotiations, the two parties finally reached an agreement.
“We were comfortable thinking about how to take a business that burns over $100 million in cash and turn it into a moneymaker,” Shapiro says.
HHow did KPS and TaylorMade achieve this goal? One aspect was a new approach to the PGA Tour. Previously, the company’s strategy was driven by the desire to be the most popular driver in professional golf, that is, to put its clubs in the hands of as many pros as possible. Abeles and KPS have chosen to prioritize quality over quantity. Under KPS ownership, the company reduced the number of players it sponsored by 80%. Instead, TaylorMade focused on superstars, signing former Nike players Woods and Rory McIlroy (for $10 million a year) to join other elite players like Dustin Johnson and Collin. Morikawa.
“We want to be associated with the best athletes in the world,” says Abeles. “So we pivoted.”
TaylorMade’s turnaround was facilitated by a few factors beyond its control. Woods’ win at Augusta was an unexpected marketing boon; last year, TaylorMade released a special set of irons co-designed by Woods to commemorate the victory. More important, perhaps, has been the pandemic. In 2020, golfers played some 60 million more rounds than the previous year, and overall equipment sales were up 10% from 2019, according to Golf Datatech.
“COVID has given a big boost,” Anderson says. “People were more at home and they were looking for things to do outside.”
KPS and TaylorMade also instituted a host of other less glamorous changes. They streamlined supply chains and inventory, increasing gross margins by 10%. They boosted the company’s online presence, tripling online sales. TaylorMade also tripled its market share in golf balls to around 12%, a segment that generates particularly stable revenues, thanks to the approximately 300 million balls that golfers lose every year on American courses. As Shapiro says, “No matter how good you are, you lose or replace balls.”
TaylorMade learned that its customers were willing to pay a little more and raised the prices of many products. It justified these price increases by improving its product, thanks to increased spending on R&D. KPS has found that some of the same strategies that work in industries like food cans and auto parts are also effective in golf.
With the boom in sales, KPS began to explore an exit. He quickly found a deal too good to pass up. Last May, he agreed to sell TaylorMade to South Korea’s Centroid Investment Partners for $1.7 billion.
“Our new partners…were thrilled with what they bought,” says Abeles, “because of what we’ve done with KPS over the past four years.”
For Shapiro, the only regret is not being able to redo everything.
“I personally enjoyed this investment because I’m a golfer,” he says. “I also personally liked it because I liked people a lot. And then the result was just fantastic. All in all, I would call it a win-win-win.