Acushnet Holding Corp., one of the biggest companies in the golf industry, is filing for an IPO in a market which is beginning to thaw.
Acushnet has filed to raise $100 million, but this is normally a placeholder value, and Renaissance Capital estimates that the company could raise $300 million. And while Acushnet has not indicated which exchange it intends to use, it will use the symbol "GOLF."
Golf's fortunes have been struggling over the past decade, and Acushnet is a company whose short-term fortunes could be rocky. But demographic changes over the long term could bode good things for a company that has been in the golf business for more than 80 years.
The future of golf
Acushnet manufactures golf balls, footwear, clubs, and other golfing-related equipment. As a result, its fortunes are heavily tied into hoping that the American consumer will remain interested in the game.
That will not be easy over the short run. The big problem is that as Acushnet acknowledges in its SEC filing, the number of rounds of golf played declined from 2006 to 2014. Causes for this decline range from a troubled economy to the fall of Tiger Woods. And a golf company's stock will always be relatively volatile because golfing is dependent on favorable weather conditions. A hot summer will drive down numbers for a quarter or two.
While these short-term issues are a concern, Acushnet is confident in its long-term viability. As the U.S. population continues to age and baby boomers hit retirement, the result will be more senior citizens who will likely turn to golf. Acushnet also notes that it caters to dedicated golfers, who account for 70 percent of sales and are more likely to head to premium golfing shops.
While this does mean that Acushnet spent over $40 million in 2014 and 2015 on research and development, catering to that market has kept its sales stable. Acushnet's net sales have increased from $1.3 billion in 2011 to $1.5 billion in 2015, though it did decrease slightly from $1.54 billion in 2014.
Going global for growth
Those similar sales numbers do indicate one of the two big concerns for Acushnet. The first concern is that golf is a mature industry. Even if retired baby boomers turn to golf and bolster Acushnet's sales, this is a conservative company with limited growth potential compared to other IPOs.
Acushnet plans to introduce new equipment such as balls and clubs to keep customers interested. But one of its key plans for growth is to target global markets, and the global golf apparel market is projected to have a compound annual growth rate of 4.33 percent until 2019. The company already sells golf equipment in Canada, Europe, Australia, and Asia. Japan and South Korea are its two most important markets after the United States, and Acushnet is preparing a line of clubs which will be sold exclusively in Japan. Acushnet also plans to help develop a golf market in emerging countries in Southeast Asia, and already has a presence in Thailand, Singapore, and Malaysia.
Since the developed Asian countries have aging populations and the developing countries may become more interested in golf, Acushnet could see good growth. However, it has been hurt by a strong American dollar, which has raised its overseas prices.
And while Acushnet may have a solution for the problem of low growth, there is nothing that it can do about the other concern. That is the fact that Acushnet will not see a single penny from this IPO.
In 2011, investors from Fila Korea and Mirae Asset bought Acushnet from Fortune Brands. When the company goes public, those investors will be selling their stock and getting the proceedings instead of Acushnet.
Acushnet has debt, but it is more than manageable even without the IPO proceedings. But investors should be aware of where their money will be going in this IPO and how it will not benefit the company.
A stable, if not fantastic choice
If you are interested in a company with a lot of potential, then Acushnet is not right for you. Golf can grow in the United States and globally, and Acushnet is right to bet on aging and wealthier populations who will be more interested in the game. But the game will not grow that much more compared to its current position.
While Acushnet may be volatile from quarter to quarter, and while it will not grow rapidly, investors should expect a stock which will grow steadily over the years. If you are looking for a stable stock in the long term, then Acushnet is a good choice.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.