Golfsmith International Inc., founded in 1967 as a mail-order seller of custom golf clubs, recently ventured into out-of-bounds territory, buying San Francisco-based Don Sherwood Golf and Tennis World for an undisclosed price.
Golfsmith is owned by New York-based private equity shop First Atlantic Group and was purchased in October 2002 for more than $100 million, according to First Atlantic CEO and Chairman Roberto Buaron.
While First Atlantic would not reveal the terms of the deal, Buaron did say the purchase price was “less than 5 times EBITDA.” For the equity portion of the transaction, First Atlantic tapped into Atlantic Equity Partners III, a $400 million fund closed in January 2001. Including this purchase, the fund is approximately two-thirds invested. GE Capital Corp. provided senior and subordinated debt, “dating back to the acquisition of Golfsmith,” said Buaron.
With six stores in the San Francisco Bay area, and 2002 revenue in excess of $25 million, Sherwood Golf has maintained solid growth, despite a 5% drop-off in rounds of golf played since 2001.
“San Francisco is one of the top five golf markets, and the six Sherwood stores give us critical mass in that area,” said Buaron. “Since we purchased Golfsmith last year, we’ve received a number of expressions in the industry to work with us in our consolidation plan. We picked [Sherwood Golf] because they fit within our strategy.”
In fact, Buaron said Sherwood approached Golfsmith, which eliminated the need for an auction.
Scott Sherwood, son of deceased founder Don Sherwood, is stepping down from his current role at the helm, although he will stay on as a consultant. “We will integrate the rest of management into our existing structure,” Bauron said, adding, “We’ll see how soon we can change the name, or whether that even makes sense, once we understand the San Francisco market. But eventually the [Sherwood] stores will have [the Golfsmith] look and feel.”
Golfsmith already has 35 stores in the U.S., five of which have opened for business since the First Atlantic acquisition. Other upgrades under the buyout group’s watchful eye include a redesigned Web site and mail order catalog. Up next, Golfsmith is expected to expand in the states it already occupies and venture into other areas including the Southwest and Northeast regions. Additionally, the company will likely steer clear of Florida, due to overcrowding and the complexities of that market.
Golfsmith offer golf equipment from manufacturers such as Callaway, Ping, Titleist and Nike. It also markets clubs, components and accessories under its own brands, which include Golfsmith, Harvey Penick, Lynx, Snake Eyes and Killer Bee. In 2002, Golfsmith made more than $250 million in revenue, a 25% jump from the previous year despite the lackluster economic environment, which doesn’t seem to stop people from playing golf. According to golf research firm Golf Datatech, Americans spend more that $6 million each year on golf, and the average duffer plays more than 20 rounds of golf per year.
Don Sherwood Golf and Tennis is the second add-on for First Atlantic’s Golfsmith . In May, the Austin, Texas-based company purchased club component maker Zevo Golf for an undisclosed price.
First Atlantic, with approximately $490 million under management, focuses its investments on both private and public middle-market companies, as well as orphaned divisions of large corporations. So far in 2003, the firm has been active on the exit front as well. In May of this year, the firm, along with JPMorgan Partners and Aetna Life Insurance Co., exited its investment in Berry Plastics, to GS Capital Partners for $837.5 million.