A leading U.S. golf twosome is shaking hands and going off to play on their own. 

In 2020, Dallas-based Topgolf and Carlsbad, California-based Callaway Golf announced that they were merging to form Topgolf Callaway Brands [NYSE: MODG] via Callaway’s $2.6 billion acquisition of Topgolf. The combined enterprise created an “unrivaled tech-enabled golf company delivering leading golf equipment, apparel, and entertainment,” the companies said when the merger was completed in March 2021.

Topgolf is a leading tech-enabled golf eatertainment business with more than 100 U.S. and international venues. It acquired its revolutionary Toptracer ball-tracing technology in 2016, and that tech has become steeped across Callaway’s brand since the merger. Callaway is a longtime leader in the global golf equipment market with a scale position in active-lifestyle soft goods.

And now they’re slicing what they’ve joined into two with the announcement that Topgolf Callaway Brands intends to separate its business into two companies that will operate independently.

The company said it aims to spin off Topgolf to Topgolf Callaway Brands’ shareholders in a transaction that’s intended to be tax-free to both the company and its shareholders for U.S. federal income tax purposes.

Topgolf will continue to be led by its CEO, Artie Starrs.

Standalone spin-off of Topgolf seems most likely

The company said it expects that a spin-off of Topgolf into a stand-alone public company is “the most likely separation path,” but that it will continue to evaluate “other options for separation” to maximize shareholder value.

Over the last 12 months if revenue through Q2 2024, Callaway reported $2.5 billion in revenue, including its Toptracer business. Topgolf reported around $1.8 billion in revenue for the same period, excluding Toptracer.

“Over the last decade plus, we’ve transformed Callaway into the #1 brand in golf equipment, while building a successful and complementary apparel and accessory business,” Chip Brewer, President and CEO of Topgolf Callaway Brands, said in a statement. “We believe this business, on a stand-alone basis, will be well understood and valued by the market.”

Brewer—who will continue to lead Callaway—said that since the merger, the company has made “considerable investments” in the Topgolf business that have “dramatically expanded its scale, digital capabilities, and venue profitability.”

“These investments, combined with the hard work of the Topgolf team, have allowed us to outperform our original growth and free cash flow expectations,” Brewer added. “Looking forward, we remain convinced that Topgolf is a high-quality, free cash flow generating business with a significant future value creation opportunity.”

Differences that didn’t align

Brewer also spoke to differences in the two companies’ structures that account for the decision to separate.

“Topgolf is transforming the game of golf and is expected to deliver substantial financial returns over time,” he said. “At the same time, Topgolf has a different operating model, capital structure and investment thesis than Callaway, and as a result, the board has determined that separating Topgolf will best position Topgolf and Callaway for success and maximize shareholder value.”

John Lundgren, chairman of the board of Topgolf Callaway Brands, called the decision to separate “the result of a thorough strategic review conducted by the board of directors and the management team.”

“The creation of two independent companies, each with a distinct focus and proven business model, is intended to drive continued momentum in both businesses and deliver value to all our shareholders,” Lundgren added.

What the companies walk—or golf cart—away with

So who gets what in the separation?

Callaway will consist of the company’s existing golf equipment, Toptracer, and active lifestyle businesses, maintaining the #1 U.S. market position in golf clubs, as well as a growing #2 position in golf ball sales. Callaway’s brand portfolio will include Callaway, Odyssey, TravisMathew, OGIO, Jack Wolfskin, and Toptracer.  

Topgolf will now tee off with its existing golf eatertainment business, but without owning Toptracer. Topgolf will likely to continue to innovate. Just last month, it unveiled its “Sure Thing” driver with allegedly patented “chicken wing” technology. Its media portfolio includes “Shankstars,” a mobile game that lets would-be hackers, duffers, and shankers play an imaginative round anytime.

Topgolf Callaway Brands said it expects to spin off Topgolf in the second half of 2025, but noted that the timing might change.

The company’s financial advisors are Goldman Sachs and Centerview Partners with Latham & Watkins LLP serving as legal counsel.

Get on the list.
Dallas Innovates, every day.

Sign up to keep your eye on what’s new and next in Dallas-Fort Worth, every day.