Who are the winners of the Topgolf & Callaway Golf merger?


By: October 29, 2020


If you are following regularly the golf participation reports of the National Golf Foundation and KPMG you can see a stagnation in golf participation in the US since 2013.

At the same time, the sport & entertainment industry is booming. According to my source, it is expected to grow to $63.9 billion in 2020.

The National Golf Foundation (NGF) says in 2018, 23 million golf balls were hit (in the U.S.) with clubs at golf-entertainment facilities like Topgolf and Drive Shack, indoor simulators, and driving ranges.

Callaway Golf started to look for a new source of revenue to grow more than a decade ago. Callaway Golf was the first in the golf industry to invest in golf entertainment venues by investing in Topgolf. Their cooperation started in 2006.

Between 2006-2019, Callaway Golf has invested $70.5 million in Topgolf. Callaway Golf has already got 14% in Topgolf.

Topgolf Callaway Golf merger

What justifies and underpins also the recent merger between the two companies is a Topgolf survey (2018):

  • 23% of new golfers surveyed, who have been playing for 3 years or less, started playing golf after their first Topgolf experience. Of those, nearly 75% say Topgolf influenced their decision to play golf.
  • 75% of non-golfers say they are interested in playing golf on a course.
  • 99% of Topgolf guests surveyed say they will return.

Callaway Golf & Topgolf: definitive merger agreement

Callaway (NYSE:ELY) and Topgolf Entertainment Group (Topgolf) have recently entered into a definitive merger agreement.

Under the terms of the agreement, Callaway and Topgolf will combine in an all-stock transaction creating a global golf and entertainment leader.

The number of shares to be issued is based upon an implied equity value of Topgolf of approximately $2 billion, including the 14% already owned by Callaway.

Topgolf Callaway Golf merger benefits
Key benefits of the merger
  • A Highly Complementary Fit: The two companies share a focus on golf and active-lifestyle consumers. With Topgolf’s 90 million consumer touchpoints a year, the combined company will benefit from a compelling family of brands with reach across multiple channels including retail, venues, e-commerce, and digital communities. Topgolf is introducing new players to the game of golf, a powerful trend that benefits Callaway’s golf equipment and soft goods businesses.
  • Enhanced Resources to Accelerate Growth: The combined company’s industry-leading sales, marketing, and partnership infrastructure will drive traffic, increase same venue sales and accelerate conversion of new business opportunities. Together, Callaway and Topgolf’s significantly expanded consumer reach will drive increased promotion, exposure, and sales of equipment and apparel to golfers and non-golfers alike.
  • Innovation to Drive Long-term Potential: A shared innovative culture creates exciting long-term opportunities including the potential to distribute content across connected screens for instruction, fitness, and lifestyle.
  • Pro forma revenue of approximately $2.8 billion based on fiscal year 2019 results that is expected to grow to approximately $3.2 billion by 2022 and at approximately 10% per year in the years following.
  • Pro forma adjusted EBITDAS of $270 million based on fiscal year 2019 results that is expected to grow to approximately $360 million by 2022 and at mid-to-high teens per year in the years following.

Under the terms of the merger agreement, Callaway will issue approximately 90 million shares of its common stock to the shareholders of Topgolf, excluding Callaway, which currently holds approximately 14% of Topgolf’s outstanding shares.

Upon completion of the merger, Callaway shareholders will own approximately 51.5% and Topgolf shareholders (excluding Callaway) will own approximately 48.5% of the combined company on a fully diluted basis.

Upon closing, the combined company’s Board of Directors will consist of

  • 13 directors, including 3 directors appointed by Topgolf shareholders. Chip Brewer will continue to lead the combined company as President and Chief Executive Officer.
  • Dolf Berle will continue to lead the Topgolf business through a transition period following the close of the transaction, at which time he intends to step down to pursue other leadership opportunities.
  • John Lundgren will continue as Chairman of the Board of the combined company, while Erik Anderson will serve as Vice Chairman.

Customer experience development opportunity

It seems like Callaway Golf understood how important to engage with customers beyond the classic customer journey touchpoints. A Topgolf venue is a kind of always-on demo day.

By cooperating with Topgolf, Callaway Golf will be able to deliver an omnichannel customer experience and increase interest not just in golf but in Callaway’s equipment and apparel too.

It is really crucial to meet customers when and where they want to be engaged. This will help Callaway Golf to build brand consistency and loyalty. 

How will they create memorable and meaningful (defining) moments (beyond what Topgolf solution can offer) to foster a better customer experience?

Finally, let’s not forget that without investing in employee experience it will be really difficult to achieve our CX and other business goals. Gallup found that the employee engagement rate in mid-July in the US was 40%.