Callaway Golf To Acquire Jack Wolfskin For €418 Million

Callaway Golf Company (NYSE: ELY) announced today that it has entered into an agreement to acquire Jack Wolfskin for €418 million, or approximately $476 million assuming a 1.140 Euroto US Dollar conversion rate, subject to certain purchase price adjustments.   

The acquisition furthers Callaway's push into the active lifestyle category after its successful 2017 acquisitions of TravisMathew and Ogio. Jack Wolfskin is an international, premium outdoor apparel, footwear and equipment brand. The company designs premium products targeted at the active outdoor and urban outdoor customer categories. 

"We are very excited to welcome the Jack Wolfskin brand into the Callaway portfolio," commented Chip Brewer, President and Chief Executive Officer of Callaway. "Jack Wolfskin is a premium outdoor brand with tremendous international reach, being a leading brand in the European market and having a substantial presence in China. It also helps Callaway expand its presence in the high-growth, active lifestyle category."

Mr. Brewer continued, "We are also very excited to work with Jack Wolfskin's great leadership team, led by CEO Melody Harris-Jensbach, to maximize this brand's growth potential."

"We are thrilled at the prospect of joining Callaway's growing portfolio of premium, active lifestyle brands," said Jack Wolfskin's Chief Executive Officer Melody Harris-Jensbach. "Callaway has proven over many years that they are great innovators and brand builders. We see that they really invest in the brands they acquire and couldn't be happier to be working with them."

Assuming a 1.140 Euro to US Dollar conversion rate, Jack Wolfskin had net sales of $380 million in the fiscal year ended September 30, 2018, based on preliminary unaudited results provided by Jack Wolfskin. Jack Wolfskin provides over 3,000 points of sale globally, including wholesale, company-owned retail and franchised retail stores. Post transaction, Jack Wolfskin will continue to operate out of its headquarters located in Idstein, Germany.

The $476 million purchase price values Jack Wolfskin at a multiple of approximately 12 times its fiscal 2018 adjusted EBITDA of $40 million. Excluding non-recurring transaction costs and non-cash purchase accounting adjustments, financial expectations for Jack Wolfskin are as follows:

• Full year 2019 net sales are estimated to be flat compared to prior year, but are expected to accelerate to mid-single digit growth over the mid- to long-term.
• Full year 2019 adjusted EBITDA, excluding purchase accounting adjustments, is estimated to be approximately $33 million, a decrease compared to the prior year as a result of incremental investments to build long-term sustainable growth as well as projected cost of living increases.  The investments would include investments in design, marketing and infrastructure to allow for growth in Jack Wolfskin's core business as well as future expansion into new regions. 
• EBITDA is estimated to reach $50 million in 3-4 years, with long-term EBITDA margins forecasted to be accretive to Callaway's current EBITDA margins.
• Full year non-GAAP earnings per share (EPS) is estimated to be $0.06 dilutive in year 1 and accretive in year 2. Non-GAAP EPS excludes non-recurring transaction costs, amortization of financing fees, and incremental non-cash expense resulting from the purchase accounting adjustments.
• Full year GAAP EPS is expected to be $0.25-$0.35 dilutive in year 1 and approximately neutral in year 2. GAAP EPS includes non-recurring transaction costs and incremental non-cash expense resulting from the acquisition purchase accounting adjustments.

The acquisition is expected to close in the first quarter of 2019, subject to regulatory approvals and other customary closing conditions. Callaway intends to finance the transaction with a $476 million term loan facility, led by BofA Merrill Lynch and JP Morgan Securities LLC.

Latham & Watkins LLP acted as legal counsel and JP Morgan Securities LLC acted as exclusive financial advisor to Callaway. Kirkland & Ellis International LLP acted as legal counsel and Houlihan Lokey as exclusive financial advisor to Outdoor Holdings SCA - the holding company of Jack Wolfskin. THM Partners acted as director of and advisor to the Jack Wolfskin Group.