It's not exactly par for the course, but the golf industry continues to go through a consolidation. The latest player to hit the green of a merger is golf-apparel maker Cutter & Buck
It seems like a shrewd maneuver for the Swedish firm New Wave Group, which, like Cutter & Buck, also sells clothes, corporate gifts, and accessories. Part of New Wave's strategy is to seek out acquisition targets that have found themselves in the rough but still hold the potential to hit the green.
Cutter & Buck seems to fit the bill. The golf industry has been showing anemic growth lately, with the number of rounds of golf played having declined for several years in a row. The slight uptick in 2006 did nothing to dispel the notion that too many golf courses have been put up and that not enough new golfers have been attracted to the game. Cutter & Buck posted third-quarter results last month that made it seem like a duffer on the links.
While it had tough comparisons to go up against, that was only because Cutter & Buck held a fire sale the year before and cleared out lots of inventory at cut-rate prices. So while sales showed remarkable growth, margins tumbled. This time out, sales were handicapped to just 3% growth, although margins did improve. It wasn't the only golf-apparel retailer stuck in the sand trap. Ashworth
New Wave made its first foray into the U.S. market with an acquisition of corporate-gift seller Orrefors and will expand its presence now with the golf-shirt maker. At the $14.38-per-share purchase price, Cutter & Buck is valued at more than 20 times estimated 2007 earnings, which puts it at a premium to both Nike
It certainly wears well, given that both sell premium wares and upscale threads, and New Wave itself trades at around 21 times earnings. It also won't be taking on any more debt, since Cutter & Buck is debt-free, which is probably good, since such long-term liabilities have swelled for New Wave in recent years to reach more than 12 times cash on hand.
Broader marketing opportunities with an international reach just might help Cutter & Buck realize a new round of growth that it wouldn't have been able to accomplish on its own.
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