2002: N.Y. investors acquire Golfsmith

Golfsmith International Inc. has sold a majority interest in its retail operation to First Atlantic Capital Ltd. – a New York-based private investment firm that specializes in acquiring and growing mid-size companies.

Considered one of the industry’s largest retail operators, Golfsmith – with estimated annual sales in excess of $200 million – sells premium equipment, accessories, “house” brand components and clubs via a chain of 24 superstores, a catalog business and its e-commerce Web site.

The deal, announced Oct. 16, consummates a six-month courtship and marries a family-owned business from Austin, Texas, with New York investors who previously had not a single retail property in their portfolio nor an ounce of golf industry experience.

But First Atlantic officials are undeterred and insist Golfsmith shares a common characteristic with their other holdings: a leadership position in its category and ample growth potential.

“We did not set out to find a golf business, and I would not call us experts in the retail field,” said Noel Wilens, a partner with First Atlantic. “Let’s just say we tend to be opportunistic.”

The firm’s 13-year track record reflects that claim. First Atlantic’s three investment funds manage $490 million invested in a wide range of unrelated businesses. Its largest private equity fund, the $350 million Atlantic Equity Partners III, was used for the Golfsmith acquisition and is invested in three other companies: Allied Office Products, a distributor of supplies, including computer, coffee and janitorial products; Peek Ltd., a manufacturer of traffic equipment and traffic management software; and Ranpak Corp., a producer of packaging goods, including wrapping and cushioning materials.

Though First Atlantic partners commonly lend their cumulative business experience, they will leave day-to-day business operations in the hands of experts, in this case, Golfsmith’s existing management team. In fact, they promoted Jim Thompson, who had served as senior vice president of merchandising and retail operations, to president and CEO of Golfsmith.

Wilens also said the investment firm isn’t terribly worried about the “doom and gloom” surrounding the health of the golf industry, which has been plagued by flat participation and declines in rounds played.

“We are realists, and we went into this with our eyes open,” he said. “For a well-run operation like Golfsmith, I think there is a lot of room for growth, regardless of participation increases or lack thereof. If we get our growth by participation, great. We’ll take it, however we can get it. But even if that doesn’t happen, I think we can achieve our business goals.”

First Atlantic officials declined to provide details of its plans. But they said their cash infusion will be used for all facets of Golfsmith’s operations, including new retail locations and expanding its catalog and e-commerce site.

From a consumer perspective, the shopping experience at Golfsmith likely won’t change except for one detail: future store sizes won’t be as expansive. Once noted for its 30,000-square-foot superstores, Golfsmith has gained better efficiencies recently by building more modest outlets half that size. The new owners also intend to grow the retailer’s exclusive brands such as Golfsmith, Harvey Penick, Lynx, Snake Eyes and Killer Bee.

As for the Paul brothers – Carl and Frank, who built the company over the past 35 years – they maintain a minority stake. In a letter to their employees, the brothers said they decided to sell because “the magnitude of the company had simply passed us by.” And before they stepped down, they wanted to resolve succession issues to best ensure Golfsmith’s future.

Carl Paul, along with Thompson, will serve on anew seven-member board; the remaining seats will be filled by an independent representative and four First Atlantic executives, including Wilens and Charles Shaw, the investment firm’s managing director and newly appointed Golfsmith chairman.





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