Topgolf's parent company plans to spin off the golf entertainment venue business to create two independent entities, Callaway and Topgolf, to help both become more profitable just three years after merging the companies.
Topgolf Callaway Brands, based in Carlsbad, California, expects the spinoff of Topgolf into a stand-alone public company to be complete in the second half of 2025. Topgolf's revenue in the 12 months ending June 30 was about $1.8 billion, while Callaway's topped about $2.5 billion in that period.
To help fund the spinoff, the company plans to reduce the number of Topgolf venues in its construction pipeline next year to between four and six venues to free up cash for the transition, according to a statement. Additional details on its development plans were not immediately available from the company.
Once the spinoff is complete, Topgolf will have a significant cash balance and no financial debt, while Callaway will be able to operate "at an appropriate level of leverage for its operations and financial profile," according to the statement.
The proposed spinoff comes on the heels of the company's executives telling investors that consumer belt-tightening has hit Topgolf's bottom line. The spinoff is the result of a strategic review conducted by the parent company after disappointing stock performance and a drop in its year-over-year venue sales.
"Looking forward, we remain convinced that Topgolf is a high-quality, free cash flow generating business with a significant future value creation opportunity," Topgolf Callaway Brands President and CEO Chip Brewer said in a statement.
Topgolf had 101 global locations open at the end of the second quarter, with 92 of those being in the United States, according to an investor presentation.
Callaway acquired Topgolf in 2021 as an opportunity to reach new potential golf customers. At the time of the $2 billion deal, Topgolf had 63 open-air U.S. venues and was swinging for international growth through franchise agreements and new development.
As two independent companies, Callaway and Topgolf are expected to perform better financially with optimized capital allocation, simplified operating structure and a distinct investment thesis for each entity.
Callaway, which has the No. 1 U.S. market position for branded golf clubs and the No. 2 market position for branded golf balls, plans to reinvest in growing its market-leading positions once the split is complete.
In the separation, Callaway is expected to retain all existing Topgolf Callaway Brands' financial debt, including the term loan and the convertible notes. Meanwhile, Topgolf will retain its venue financing obligations but will have no financial debt.
Upon separation, Callaway will continue to be led by Brewer, with Topgolf's business continuing to be led by Topgolf CEO Artie Starrs.
Topgolf Callaway's management team and its advisers are also considering other options outside of a Topgolf spinoff, but the company's management team said this week the separation path is the most likely outcome.
For the record
Topgolf Callaway's financial advisers are Goldman Sachs and Centerview Partners. Latham & Watkins is serving as the company's legal counsel.