Centroid's acquisition of TaylorMade hits snag

Local PEF might delay payments for TaylorMade acquisition

By Anna J. Park

Local private equity firm (PEF) Centroid Investment Partners' acquisition of global golf brand TaylorMade has hit an unexpected snag, as Centroid faces the possibility of delayed payments for the acquisition process.

According to the investment banking (IB) industry, Centroid's M&A fund formation has been delayed, as a few institutional investors have backed out of their initial investment plans, which were originally to join a mezzanine fund, a hybrid of debt and equity financing.

Out of the PEF's plan to raise 2.1 trillion won ($1.84 billion) for the acquisition financing, the plan is said to be still short around 300 billion won. Given that Centroid signed a deal a few months ago to purchase all 100 percent of TaylorMade's stakes at 1.8 trillion won, the reason why they plan to raise the 300 billion won more than the required money is to secure interest payments as well as other necessary underwriting charges surrounding the acquisition.

As Centroid is set to pay the money for the deal by the third week of July, it could be facing an unwanted delay of the payments. Facing such obstacles, Centroid is attempting to raise the additional money by attracting other LPs (limited partners) for the investment.

One of the reasons that some of the institutional investors backed out of the deal ― changing their positions in the investment deal ― is their lack of trust in The Nature Holdings, which is a strategic investor (SI) of Centroid in this acquisition deal.

Centroid selected The Nature Holdings last month as a partner in the acquisition of TaylorMade, given the company's knowhow in the retail licensed clothing business. The clothing company has been known for its National Geographic licensed fashion brand, which is popular among the young people.

As Centroid is targeting the MZ generation for expanding the global gold brand's fashion business, the two companies seem to be able to create synergy. TaylorMade's golf clothing business only accounted for around 2 percent of its entire revenue, which is far lower than other global golf brands like Titleist and Callaway, where their clothing business takes up more than 20 percent of their revenue.

However, some institutional investors thought that the middle-sized clothing company's capital level and management results were not enough in terms of credentials to earn their trust to put their money into it.

Also Centroid's promise of high interest rates ― higher than the market's rates ― for its mezzanine fund investors also played a part in weakening investors' trust in the PEF, as the plan seemed somewhat unrealistic. Centroid suggested a 10.5-percent interest rate for the mezzanine fund, which is pretty rare in the market.

If the capital raise is completed as planned by Centroid, the PEF plans to list the golf brand on the U.S. stock market by around 2023.