The Business While entertaining clients on the golf course, you worry more about your handicap than about keeping them happy. Time for a career change? Consider this 10-year-old manufacturer of upscale golf clubs (which make up 35% of sales), graphite shafts, and other components (which, combined, make up 65%). The company scores industry highs for quality and quick delivery. There's growth potential, including expansion overseas. Nevertheless, sales and earnings have slipped since the company's 1989 high of $2.1 million. The current owner can't swing a marketing drive to expand from the current customer base of about 2,000 golf courses, driving ranges, and custom club makers.

Financial Summary 1993 1994 1995
Gross revenues $1,480,000 $1,460,000 $1,220,000
Recast earnings before depreciation, interest, taxes, and owner compensation $580,000 $410,000 $340,000

Price $1.1 million. Owner will finance $400,000 for 10 years at 10% interest.

Outlook In 1994 the United States' 24-million-plus golfers spent a whopping $2.2 billion on golf clubs alone, up from $1.5 billion seven years ago. But competition among club manufacturers is fierce, with the market dominated by Callaway, Cobra, and a handful of others. One plus: this company sells mainly to independent club makers, the fastest-growing industry segment. Still, the owner estimates that a working-capital infusion of $400,000 to $500,000 is necessary to step up the company's sales-and-marketing campaign and hire a general manager.

Price Rationale Calculating this manufacturer's value is harder than getting a hole in one. In a typical growth situation (in which a CEO can boast about rising sales and a declining golf score), a discounted cash-flow method might work: a fair market value is set by projecting future sales and profits over the next five years and then calculating a present-day value for those results. But if you project too far into the future, you just might wind up with a market of one person -- yourself. Given shrinking revenues, it's smarter to rely on an asset-based valuation: since the company leases its 6,800-square-foot production facility and machinery, its main asset is about $600,000 worth of inventory. But since a $500,000 infusion of capital is necessary, you've got to play this valuation extra safe by assigning fire-sale prices to any inventory that might be tough to nudge. If you have six months' worth of inventory backlog, a fairer asking price might be $400,000 or less.

Pros A top-notch product and a chance to schmooze with the pros.

Cons If you can't turn this one around quickly, you'll have more golf headaches than O.J. Simpson.

-- Jill Andresky Fraser

Inc. has no stake in the sale of the business featured. The magazine cannot confirm the accuracy of financial or other information offered by the seller. Inquiries should be directed to Jim Roth, VR Business Brokers, 602-949-8612.

Published on: Jun 1, 1996