Canterwood Golf Country Club, ClubCorp Media.
This week, golf club operator
revealed it will acquire peer Sequoia Golf. The move
widens the company'sportfolio
from 108 to 157private courses, which, it said in
a press release, makes it "nearly five times the size of its next
While it's certainly not
in scope, the merger is significant in this industry. It
will reportedly cost ClubCorp $265 million, about one-third
of this year's projected revenue. Investors also responded warmly
to the deal -- ClubCorp shares rose 7.4% after the
announcement on Wednesday. So what's this news tell us about the
industry, and the company going forward?
An industry snapshot
Broadly speaking, golf course participation and course
construction have contracted in recent years, the National
Golf Foundation says. Reasons for this range from expensive
playing requirements to bad weather, but it's clear
the decline has affected the price of golf courses.
reports, the price of a regulation-length, 18-hole course reached
$7.3 million before the 2007-08 recession. By 2012, that
number dropped to $2.7 million before rebounding
to just over $4 million per course last
year. ClubCorp's Sequoia purchase, which averages $5.3
million a course, places a slight premium on this
The economics at play could explain why. The NGF tells
PGA.com it estimates course closures will outnumber openings
for the near-term future. There were just over 14,500 golf
courses in the U.S. last year, down from about 16,000 a decade
ago. "As the number of courses shrinks, the number of
potential buyers is starting to increase as the overall economy
rebounds," the outlet adds. In other words, a shorter supply and
heightened demand could continue to push prices up.
ClubCorp's focus on private clubs could also be a reason
it paid a pretty penny, relatively speaking, for Sequoia. In
the U.S., public courses outnumber private courses, where the
typical golfer spends more than $2,000 a year, according to the
NGF. Public golfers spend less than a third of that. The fact
that private clubs can also charge membership fees -- and
generate revenue with restaurants and private event space --
helps explain why a premium would exist.
What's ClubCorp's strategy?
To investors, analysts, and others who have followed
ClubCorp, the Sequoia acquisition likely wasn't surprising.
The company bought Dearborn's TPC Michigan
and Charlotte's TPC Piper Glen in April, just a month
after its purchase of Prestonwood Country Club
in Dallas. It also acquired a trio of courses last year.
Because ClubCorp makes roughly 50% of its revenue --
estimated to hit at least $845 million this year --
from membership fees, a strategy focused on
rapid growth makes sense. The acquisition of Sequoia
will boost ClubCorp's total membership to 430,000 people,
leading to better economies of scale and a larger presence
in Atlanta, Houston, Denver, and Chicago, the
But inorganic growth isn't the only tactic at its
disposal. ClubCorp is also in the midst of a redesign, where
it's weaning off traditional country club
elitism. "[CEO Eric Affeldt] is bringing a family mentality
to the clubs that for years had this image of an old men's club,"
a member told the
Dallas Morning News
earlier this year. Among the additions: more
parties, cooking competitions, and even tweaks to make the
golf courses easier to play, the outlet says.
To this point, it appears to be working. The company
reported last quarter's revenue and EBITDA rose more than 8%,
while membership was up 3%. "Our clubs are successful because
they are multifaceted, multi-generational, and appeal to a wide
range of members and their guests," Affeldt told analysts
What are others in this space up to?
Many competitors -- Troon Golf, Castle &
Cooke, Heritage Golf, and Boyne USA -- are privately
held, so it's tough to determine exactly how they're doing
financially. More visibly, though, publicly traded peers
are selling some properties. CBRE's golf
division sold 15 courses in 2013, according
Marriott Vacations, meanwhile, sold Orlando's Grand
Pines Golf Club for $24 million earlier this year.
The future is unclear. But if the ClubCorp-Sequoia deal
means anything, it's that golf course prices could be set to move
higher. Demand continues to recover, supply continues to shrink,
and assuming others mimic ClubCorp's redesign strategy,
country clubs could look very different down the road. At the
very least, Sequoia's stable of courses should become more
While traditionalists may object, that's OK. The game's
decline doesn't appear to be temporary, and it's not solely a
result of the most recent economic recession.
Player participation began shrinking years earlier, even as
Tiger Woods, booming drives, and better technology led to
all-time highs in television ratings. But with any luck, golf
won't go the way of boxing and horse racing -- once-popular
sports that failed to adapt to modern times.
for the next decade
The smartest investors know that dividend stocks simply crush
their non-dividend paying counterparts over the long term.
That's beyond dispute. They also know that a well-constructed
dividend portfolio creates wealth steadily, while still
allowing you to sleep like a baby. Knowing how valuable such a
portfolio might be, our top analysts put together a
report on a group of high-yielding stocks
that should be in any income investor's portfolio. To see
our free report on these stocks, just
click here now
Will the ClubCorp-Sequoia Deal Change Golf?
originally appeared on Fool.com.
has no position in any stocks mentioned. The Motley Fool has no
position in any of the stocks mentioned. Try any of our Foolish
free for 30 days
. We Fools may not all hold the same opinions, but we all believe
considering a diverse range of insights
makes us better investors. The Motley Fool has a
Copyright © 1995 - 2014 The Motley Fool, LLC. All rights
reserved. The Motley Fool has a