Titleist Acquired by Fila Korea Ltd. and Mirae Asset Private Equity for $1.2B

[B-Con]

2010 Revenue exceeds $1.2 billion, thats total sales, not profit.  Their Operating income was $80 million.   Those numbers on their own don't justify the sale price, as operating income is quite low compared to revenue meaning there is likely a lot of debt, overhead and expenses tied to that revenue.  Fila must have seen value in patents, and the ability to increase operating income significantly as the current income would result in a 15 year payback which is abnormally long for such an acquisition.

Oh, operating income matched their operating expenses at $80 million? That would make a lot more sense.

[Clambake]

Originally Posted by B-Con

Quote:

Originally Posted by newtogolf

2010 Revenue exceeds $1.2 billion, thats total sales, not profit.  Their Operating income was $80 million.   Those numbers on their own don't justify the sale price, as operating income is quite low compared to revenue meaning there is likely a lot of debt, overhead and expenses tied to that revenue.  Fila must have seen value in patents, and the ability to increase operating income significantly as the current income would result in a 15 year payback which is abnormally long for such an acquisition.

Oh, operating income matched their operating expenses at $80 million? That would make a lot more sense.

No, their operating expenses (opex) would be much higher.   Operating income is their net income, a.k.a. profit.

• Revenue - cost of goods sold = gross income
• Gross income expressed as a percentage of revenue = gross margin
• Gross income - normal operating costs (such as R&D;, sales, general, & administrative costs) - depreciation costs = Operating income (a.k.a EBIT)
• Operating income - interest costs and taxes and amortization costs = EBITDA (earning before interest, taxes, depreciation, and amortization)

If we guessed that the cost of goods sold was about 1/3 (i.e. a 66% gross margin), this would mean that their gross income was around $800M, so subtracting their $80M operating income from that means the businesses operating expenses were about $720M annually.

Operating income is a measure of a company's earning power from normal operations.    I'd agree with other's assertions that at only $80M in operating income, the price paid by FILA was very high.     However, what is not factored into the above calculations is the goodwill value of the brands - FILA must be valuing the brands around $400-500M for the price to make more sense.

[newtogolf]

I figure FILA used a combination of goodwill and patents to get to the purchase price, but I also have to believe there were were some one time expenses or other things buried in the P&L; that made Operating Income so low.  If those numbers are accurate it would indicate a poorly run business otherwise.

Originally Posted by Clambake

Operating income is a measure of a company's earning power from normal operations.    I'd agree with other's assertions that at only $80M in operating income, the price paid by FILA was very high.     However, what is not factored into the above calculations is the goodwill value of the brands - FILA must be valuing the brands around $400-500M for the price to make more sense.

[Clambake]

Originally Posted by newtogolf

I figure FILA used a combination of goodwill and patents to get to the purchase price, but I also have to believe there were were some one time expenses or other things buried in the P&L; that made Operating Income so low.  If those numbers are accurate it would indicate a poorly run business otherwise.

Yeah, I agree (and forgot to include the patents in my comment on goodwill).     Actually, those are probably worth a lot, especially since it seems like the golf ball business has turned into a litigious business and a strong patent portfolio is one's only real defense (or offense).

There are probably some one time expenses related to their past acquisitions such as Cobra.   I'm also guessing they had some one time charges from closing some factories for duplicate businesses like Pinnacle.     And I'd guess the debt expenses are probably a bit high from the acquisitions as well.

The numbers probably also hint at how expensive sales and marketing are in the golf business.    If I recall correctly, Callaway spends something like $40M in R&D;, and since much of the Titleist manufacturing is offshored then it is hard to see where a high Opex might come from other than the sales/marketing costs.     All those endorsements and TV and magazine advertisements must add up to a lot.

[Assassin]

I was told by a Pro at Golf Galaxy the other day that Cobra was purchased by Puma, which I already knew and also that Titleist was purchased by Fila. Has anyone else heard about this new ownership of Titleist?

[Shorty]

Originally Posted by Assassin

I was told by a Pro at Golf Galaxy the other day that Cobra was purchased by Puma, which I already knew and also that Titleist was purchased by Fila. Has anyone else heard about this new ownership of Titleist?

Perhaps the title of this thread (that you have resurrected) will give you a clue as to the answer to that question.

[iacas]

Originally Posted by Shorty

Perhaps the title of this thread (that you have resurrected) will give you a clue as to the answer to that question.

Wasn't resurrected. Was merged. For future reference, you can tell because it has the title thingy in the body of his post:

Titleist bought by Fila