Club Car: Golf's Next Sale?
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Just three years ago, Ingersoll Rand sold Club Car to private equity group Platinum Equity for $1.68 billion. The company was valued at a little over 12 times adjusted EBITDA.
Platinum Equity owns several companies worth billions of dollars — including the Detroit Pistons — which they bought in 2011 for $325 million. The team currently has a valuation of over $3 billion.
It has been reported that Platinum Equity is looking to sell Club Car at a valuation of $2 billion. The valuation would be around ten times EBITDA, but the report doesn’t state whether it has been adjusted.
The Club Car news got me thinking about the overall golf cart market. Then I had flashbacks to the PGA Show, where golf cart companies lined the aisles.
When we play golf, if we choose to ride, there is a good chance we will ride in one of three golf carts.
E-Z-Go
Yamaha
Club Car
All three companies are buried in large conglomerates.
E-Z-Go is owned by Textron — which makes planes and helicopters. In its 92-page annual report — E-Z-Go is mentioned four times. And it was nothing of material substance.
Yamaha is under Yamaha Motor Company. And within Yamaha Motor Company — they are in a bucket called ‘other products.’ Other products include items like engines and generators. The word ‘golf’ was mentioned twelve times in its 96-page annual report.
A large portion of the revenue golf cart companies generate is from golf courses. A four-year lease is the general rule of thumb for a fleet of golf carts to a golf course. Those carts are then recycled and sold to an individual consumer by the distributor or manufacturer.
Why is any of this important?
The possible sale of Club Car would continue to signal strength for the golf industry. The unit economics that drive golf cart demand are certainly present. As I wrote about last week — rounds and participation are at record highs.
But it isn’t just golf’s growth that will continue to drive demand for golf carts. As communities continue to pass laws that allow golf carts to legally drive on streets, demand will increase. A lake town ten miles away from me did this a few years ago. Golf cart sales skyrocketed locally.
Back to the PGA Show. Dozens of golf cart companies were exhibiting their golf carts. One looked like a 1975 Ford Bronco. One held six people and was bigger than my wife’s SUV.
I did a double take and walked back to golf cart company, Voyager. Their golf cart looked sharp, but what caught my eye was the price. It was under $10,000.
But the opportunity for disruption interests me most in the golf cart market.
Disruption in the golf cart market can take many different forms. The two that offer the most significant opportunity are technology and focus.
Golf carts continue to add new features like touch screens, backup cameras, and music options. All of this is great, but the company that incorporates launch monitors, cameras, betting, and entertainment can gain market share.
I am a huge believer in focusing on core competencies. Large conglomerates have been around for centuries and will continue to be around for centuries. But they don’t move as fast or disrupt and innovate as much as the scrappy startup.
The golf cart market has an incredible opportunity to disrupt and improve. They are also leveraged in two different sectors — golf and families using as transportation in communities.
I was impressed with the team from Voyager. They had aerospace engineers on staff to design their product. They were hungry and scrappy to make a tiny dent in the market. They are also looking for distributors. I sent my wife a message saying that we should get into the golf cart distributor business. She still hasn’t responded.
Nonetheless, they presented an interesting opportunity. To qualify as a distributor, you need to purchase four golf carts, and the margins seemed fair.
They are focused on golf carts — not dozens of other businesses.
Companies like Voyager can gain market share. But the real question is whether they can get golf courses to buy their golf carts rather than the individual consumer.
I’m not sure the golf cart can be disrupted like Topgolf disrupted the driving range. I do know that it can get better. And I know that the market is worth billions of dollars.
A $2 billion sale on Club Car would result in around a 20% return — less broker and legal fees. Which is less than what the S&P 500 has returned in the same time frame.
I’m curious to see what the interest will be in Club Car and who the final buyer will be.
Have yourself a great Monday. Talk to you next week!
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Here in Colorado I’m seeing Icon brand golf carts in our golf cart friendly community and on the golf course where I live. Also Yamaha’s have made a big move in recent years among friends of mine. Some nearby courses also use Yamaha carts.
Many of my friends are also either buying new carts when their old batteries die after about 5 years, or switch to lithium batteries. Seems to me some of the surge in cart prices and sales that took place during Covid years, 2020-2022, may be settling a bit.