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Apollo Makes $1.1 Billion Wager That Golf Remains a Cash Cow

Apollo Global Management LLC is betting that the beleaguered golf industry is finally getting out of the rough.

The private equity firm agreed to pay $1.1 billion for ClubCorp Holdings Inc., a country-club operator whose properties include California’s Mission Hills and the Woodlands in Texas. Apollo is gaining hundreds of thousands of members in the bargain, providing a steady source of cash.

The deal follows a challenging stretch for the golf industry, which saw participation decline after a peak in 2003. Hundreds of courses have closed in recent years, and the slump rocked both retailers and equipment manufacturers. Golfsmith International, the biggest golf chain, filed for bankruptcy last year. And Nike Inc., which had hitched its golf fortunes to Tiger Woods’s career, stopped selling equipment for the sport.

But golf’s core participants remain enthusiastic, and Apollo is getting ClubCorp’s more than 430,000 members — an affluent and reliable set of customers.

“We plan to leverage Apollo’s resources and expertise while working with ClubCorp’s dedicated team to continue to grow the business,” David Sambur, a senior partner at Apollo, said in a statement Sunday.

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ClubCorp’s investors will receive $17.12 a share in cash in the transaction, a 31 percent premium over the closing stock price on July 7. The shares rose to $17.06 on Monday, just short of the deal price.

Too Low?

The nature of ClubCorp’s business makes it a logical target for a private equity firm, Stifel Financial Corp. analyst Steven Wieczynski said in a note. The question is whether investors are getting a fair price, he said. The transaction equates to a roughly 7.5 multiple on estimated earnings before interest, taxes, depreciation and amortization for 2018. He sees a multiple of as much as 8.5 — equivalent to a price of $20 a share — as a better representation of ClubCorp’s steady business.

Takeover speculation began heating up in January, when Dallas-based ClubCorp announced that it had hired Jefferies Group and Wells Fargo & Co. to evaluate options. In May, the company added two new independent contractors in an agreement with activist shareholder FrontFour Capital Group.

The company had attracted critics who said golf’s decline would hamstring the business. Last year, short seller Kerrisdale Capital Management targeted ClubCorp, noting that participation in golf was shrinking, particularly among younger players, and that operating golf clubs was a capital-intensive business.

Prior to the deal announcement, the shares had declined about 25 percent since reaching a closing high this year on Feb. 21 — the day before ClubCorp reported weak fourth-quarter earnings.

Firestone Club

Founded in 1957, the company owns or operates more than 200 private golf, country and private clubs. Its properties include the Firestone Country Club in Akron, Ohio, and the Capital Club Beijing. The transaction is slated to close in the fourth quarter.

Simpson Thacher & Bartlett LLP acted as legal counsel for ClubCorp. Citigroup Inc. was lead financial adviser to Apollo, with RBC Capital Markets LLC, Barclays Plc, Credit Suisse Group AG and Deutsche Bank AG assisting. Paul Weiss Rifkind Wharton & Garrison LLP acted as Apollo’s legal counsel.

The deal for ClubCorp is the latest in a string of take-private transactions for New York-based Apollo, which deployed more money last year than ever in its history. Apollo scooped up public companies including ADT Corp., Fresh Market Inc., Diamond Resorts International Inc., Outerwall Inc. and Rackspace Hosting Inc. In May, the firm agreed to buy communications infrastructure provider West Corp. for about $5.1 billion including debt and earlier this month, completed its acquisition of Lumileds, the lighting-components division it carved out of Royal Philips NV.

To replenish its coffers, the firm has set a $23.5 billion cap on its new global buyout fund. The pool, the firm’s ninth, will be the largest ever raised by a private equity firm if it exceeds the $21.7 billion that Blackstone Group LP gathered for its fifth pool from 2005 to 2007.

Apollo, led by founders Leon Black, Josh Harris and Marc Rowan, oversaw $197.5 billion in private equity holdings, credit assets and real estate as of March 31.

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