Topgolf Callaway Brands to ‘separate’ four years after merger » Dallas Innovates

(Graphics: Topgolf and Callaway)

America’s top golfing pair shook hands and headed off to play separately.

In 2020, Dallas-based Topgolf and Carlsbad, California-based Callaway Golf announced their merger, creating Topgolf Callaway Brands (NYSE: MODG) through Callaway’s acquisition of Topgolf for $2.6 billion. The combined company created “an unrivaled technology-driven golf company delivering leading golf equipment, apparel and entertainment,” the companies said after the merger closed in March 2021.

Topgolf is a leading technology-driven golf and entertainment company with over 100 locations in the U.S. and internationally. In 2016, it acquired its revolutionary Toptracer ball-tracking technology, and that technology has become ubiquitous across the Callaway brand since the merger. Callaway has long been a leader in the global golf equipment market, with a strong presence in the softgoods market.

And now they’re splitting what they combined in two, announcing that Topgolf Callaway Brands intends to separate its business into two companies that will operate independently.

The company said it intends to spin off Topgolf to Topgolf Callaway Brands shareholders in a transaction that is expected to be tax-free to both the company and its shareholders for U.S. federal income tax purposes.

Topgolf will continue to be managed by its CEO, Artie Starrs, son of Artie Starr

The most likely outcome seems to be an independent Topgolf spin-off company.

The company said it expects a spin-off of Topgolf into a standalone public company is the “most likely separation path” but will continue to consider “other separation options” to maximize shareholder value.

In the trailing 12 months of revenue through Q2 2024, Callaway reported $2.5 billion in revenue, including the Toptracer business. Topgolf reported about $1.8 billion in revenue for the same period, excluding Toptracer.

“Over the past decade, we have successfully built Callaway into the #1 golf equipment brand while also building a successful and complementary apparel and accessories business.” Chip Brewerchairman and CEO of Topgolf Callaway Brands, said in a statement. “We believe this business, as a standalone, will be well understood and valued by the market.”

Brewer, who will continue to lead Callaway, said that since the merger, the company has made “significant investments” in Topgolf’s business that have “drastically increased its scale, digital capabilities and facility profitability.”

“These investments, combined with the hard work of the Topgolf team, have allowed us to exceed our original expectations for growth and free cash flow,” Brewer added. “As we look ahead, we continue to believe that Topgolf is a high-quality, free cash flow-generating business with significant opportunity for future value creation.”

Differences that were not consistent

Brewer also addressed differences in the structures of the two companies that contributed to the decision to separate.

“Topgolf is transforming the game of golf and is expected to deliver significant financial returns over time,” he said. “At the same time, Topgolf has a different operating model, capital structure and investment thesis than Callaway, and as a result, the board determined that separating Topgolf would best position Topgolf and Callaway for success and maximize shareholder value.”

Jan LundgrenTopgolf Callaway Brands CEO, called the decision to separate “the result of a thorough strategic review by the board and management team.”

“The creation of two independent companies, each with a distinct business profile and proven business model, is intended to maintain the momentum of both businesses and deliver value to all of our shareholders,” Lundgren added.

What Companies Are Leaving With – or Driving Away in Golf Carts

So who gets what in separation?

Callaway will consist of the existing golf equipment, Toptracer and active lifestyle businesses, maintaining its No. 1 position in the U.S. market for golf clubs and growing No. 2 position in golf ball sales. The Callaway portfolio of brands will include Callaway, Odyssey, TravisMathew, OGIO, Jack Wolfskin and Toptracer.

Topgolf will now launch with its existing golf entertainment business, but without owning Toptracer. Topgolf will likely continue to innovate. Just last month, the company unveiled its “Sure Thing” driver with its supposedly patented “chicken wing” technology. Its media portfolio includes “Shankstars,” a mobile game that lets would-be hackers, suckers and shankers play an imaginative round at any time.

Topgolf Callaway Brands said it expects to spin off Topgolf in the second half of 2025, but noted that the timing could change.

Goldman Sachs and Centerview Partners are serving as financial advisors to the company, and Latham & Watkins LLP is serving as legal advisor.