By Thomas J. Ryan
The judge overseeing the bankruptcy of Golfsmith set October 17 as the date for bids to arrive for the assets of the struggling golf chain, and at least one retailer, Worldwide Golf, is said to be exploring making an offer.
Sources told Reuters they weren’t sure if Worldwide Golf was eyeing Golfsmith’s entire U.S. business or individual leases and assets, but Worldwide Golf is the most obvious strategic buyer in the case.
Based in Santa Ana, CA, Worldwide Golf has already shown a capacity for growth through acquisitions, even a sizable one such as this. Its 2014 acquisition of Edwin Watts nearly doubled its size, and it now operates approximately 90 stores in a variety of sizes. The retailer’s portfolio ranges from Roger Dunn Golf Shops in California and Hawaii, The Golf Mart in California, Vans Golf Shops in Arizona, Golfers’ Warehouse in New England, Uinta Golf Shops in Utah and Edwin Watts Golf Shops in the Southeast.
Golfsmith, which filed for bankruptcy protection on September 14, operates 109 stores under the Golfsmith banner and has received bankruptcy court approval to close 20 of those locations.
The only other possible strategic buyer appears to be Dick’s Sporting Goods, which owns Golf Galaxy, the second largest golf retailer in the country after Golfsmith. Dick’s Sporting Goods acquired the 72-unit chain in early 2007, just as some of the factors that led to Golfsmith’s struggles began. Besides over-expansion mistakes, Golfsmith blamed the declining popularity of the game, including the descent from stardom of Tiger Woods.
The National Golf Foundation reported that the total number of people who played at least one round of the sport was approximately 24 million in 2016, down from 25.7 million in 2011 and 30 million in 2005.
Dick’s Sporting Goods isn’t expected to be significant bidder beyond some leases given its recent efforts to reduce space allocated to the golf category in its own flagship stores, as well as its investments in faster-growing categories such as women’s and youth and e-commerce in general. The golf slowdown is also being marked by Adidas’ ongoing efforts to sell TaylorMade and Nike’s move to exit its golf equipment business.
Ed Stack, Dick’s Sporting Goods’ chairman and CEO, said on the company’s second-quarter conference call August 16 he felt “there will be some consolidation on the retail side of the business” in golf. But he again inferred the retailer would be focusing less on growth and more on profitability for the golf category. “I think we are very well positioned and our golf business, we remain committed to our golf business,” said Stack. “And understand, our golf business is profitable. It’s not a drag on earnings. Our golf business is profitable.”
A source also told Reuters that financial investors are interested in Golfsmith. The company reached a support agreement with Toronto fund manager CI Financial Corp. and Fairfax Financial Holdings Ltd. on a debt restructuring for the business. Under this scenario, if no better offer comes in as part of the sales process, Golfsmith will be taken over by the senior noteholders.
The restructuring support agreement with Fairfax and CI calls for senior-secured noteholders to receive a 100 percent equity interest in the reorganized debtor and swap roughly $95 million in second-lien notes for $35 million of new 12-percent second-lien notes.
Fairfax and CI collectively hold more than 40 percent of the company’s second-lien secured notes due 2018. As part of the bankruptcy reorganization, the two financial firms agreed to acquire Golf Town, the Canadian-based golf chain that Golfsmith merged with in 2012. Golf Town has 55 locations in Canada, and a Canadian court approved the Golf Town transaction on September 30.
If a sale or debt restructuring fails, the company would liquidate according to a resolution passed by Golfsmith directors and included in court documents. Managers were “directed to finalize and implement a going-concern sale and partial chain liquidation plan and, in the alternative, a full chain liquidation plan,” the resolution reads.
If at least one viable bid arrives by October 17, an auction will be held on October 19. If the winning bid envisioned a liquidation of the debtor’s assets, a sale hearing would be held on October 24. If the winning bid called for purchasing Golfsmith as a going concern, the sale hearing would follow on October 31.
Provisions in the debtor’s $135 million debtor-in-possession loan from Antares Capital require the debtor to consummate a sale by October 31. A quick sale would also help the stores stock up for the critical holiday selling season.
“Executing a going concern sale with alacrity will restore the confidence of Golfsmith’s vendors,” Golfsmith said in its bidding procedures motion. “This, in turn, will allow a reorganized Golfsmith to acquire ‘new generation’ golf equipment and other mainstay merchandise on more relaxed trade terms leading up to and during the upcoming holiday season.”
On an optimistic note, Brian Cejka, Golfsmith’s chief restructuring officer, has written in an affidavit that the bankruptcy filings and restructuring efforts are coming as “market trends indicate that a turnaround in the golf retail market could be imminent.”
He noted that golf participation in the U.S. has stabilized and resumed growth last year. The sport is expected to gain a boost as more boomers reach retirement while the arrival of younger players such as Rory McIlroy, Jordan Spieth, and Jason Day, “coupled with an increased focus by the industry on technological innovation and enhanced experience, have started to draw more millennials and junior golfers into the game.”
Cejka concluded that the debt restructuring and closing of its unprofitable stores through bankruptcy proceedings will “significantly reduce the burdens that inhibit Golfsmith from taking full advantage of the recent upward swing in golf’s popularity.”
Photo courtesy Golfsmith