Taylormade See's Adams Golf As Threat - So Why Not Buy Them

STOP!!! Please do NOT read the press releases about Taylormade buying Adams Golf. Yes…I know…you can find dozens of sites copying and pasting this info just about everywhere this morning (we even put it up in our forum). But you must resist. Why?

Because if you do read the press release you might actually come away believing that Taylormade Golf spent $70 million dollars to acquire Adams Golf because those inside TaylorMade-Adidas actually believe Adams is an excellent addition to the TMaG Empire. Look, press releases can be spun any number of ways, but they're always written to give you nothing more than the company wants you to have. That's not to say this one is full of lies and half-truths. There is certainly plenty of legitimate insight to be found between the lines. Take this eloquent blurb from this mornings' release for example:

"The proposed combination of Adams Golf and TaylorMade-adidas Golf brings together two highly complementary sets of brands, combining Adams' focus on game-improvement as well as senior and women golfers with TaylorMade-adidas Golf's focus on the younger and the low-to-mid handicap golfer." said Herbert Hainer, CEO of adidas Group, TaylorMade's parent company.

Well said, right? You read this and you might actually think to yourself…"yeah, you're right. Adams does well in areas that aren't particularly strong for TaylorMade (game-improvement clubs, equipment for seniors and women, and to an extent, hybrids). This IS a perfect fit".

It all makes sense, right? Well…if we were playing the card game "Bullshit", I would be calling Mr. Hainer out, and I think the probability of him chugging a cold chilly brewski is close to 100%. Nothing in the press release would suggest what we believe to be true; while Adams does do game-improvement clubs, as well as clubs for women and seniors very well, in general Adams also makes a better iron than TaylorMade, and their lineup of hybrids and woods is every bit a worthy competitor to TaylorMade's own lineup. As much as anything else, the 70 million dollar purchase of Adams Golf is about killing the competition before it starts.

PURELY A BUSINESS DECISION

While there are most definitely aspects of the TaylorMade and Adams lines that one could accurately be described as complimentary, TaylorMade doesn't need Adams Golf. The more we look at this, the more we see the acquisition as a square peg being crammed into a round hole. Their brands are more competitive than they are complimentary. This isn't about unifying a "complimentary sets of brands", it's about TaylorMade making a smart business decision. And as far as smart business decisions go, for TaylorMade, this one is a gimme from 2 inches; an absolute no-brainer.

Happy unification stories warm the heart, but here's how wee see it. As recently as yesterday, Adams Golf posed the single biggest risk to TaylorMade's empire. In the right hands, and with enough financial backing to challenge the TaylorMade marketing machine, the right competitor would have had a tremendous opportunity to challenge TaylorMade's King of the Hill status. We heard some pretty interesting possibilities for who the eventual buyer of Adams would be. One in particular, we believed, would have positioned Adams perfectly to make their move. But then TaylorMade stepped in.

TaylorMade didn't get to number 1 through dumb luck. There are some very smart people running the show at TaylorMade, and I'm willing to bet more than a few of them also believed that Adams Golf, with the right buyer, would be a potential threat. And so, rather than take the chance, TaylorMade decided to be the buyer. They spent 70 million bucks (TMaG pocket change) to eliminate a threat. Of course, it's also possible they just really wanted Kenny Perry back.

A Question of Innovation

There is Adams Golf as it exists today, and then there is Adams Golf as it could exist in the next 1, 2, or 3 years. Adams is a company known for innovation, and you can bet the pipeline for new Adams products is a long one. As we're seeing with the XTD fairway wood, even when TaylorMade makes a legitimate innovative step forward in fairway technology, Adams is the first, and perhaps the only, to offer a legitimate challenge to supremacy of the RocketBallz. Who knows what next years' technology might look like.

Rather than fight the same battle (along with accusations of stealing technology from others), why not spend a little bit of money to acquire the current technology, everything in the pipeline, and as a bonus, end all of the sniping over who invented what first. As far as the technology is concerned, a few have already suggested that this is a classic case of "If you can't beat them, buy them". Whether the motives are entrenched that deeply is purely speculation, but as I said, it must have been an easy decision for TaylorMade-Adidas.

While the merger is a done deal, it will take a couple of months for the relationship to be consummated. And It could very well take years for all the dust to settle, but we've already started to think about what the future looks like for Adams Golf. While this is absolutely a win for TaylorMade, for fans of the Adams brand, we think the probability that this is going to end well is extremely low.

Possible Scenarios:

Effectively Kill the Adams Brand (the Ben Hogan Scenario): It's not an outcome we're particularly fond of, but it's one we see has having the highest probability. In this scenario TaylorMade works the Adams product pipeline. They release some woods, a few more hybrids, and some irons, but nothing truly ground-breaking. You might even see the Yes! brand grow. The efforts, however, are all part of an end game to recoup the purchase price and perhaps make a little extra for shareholders. This model isn't about building the Adams brand, it's about total elimination of competitive risk. When the resources have been bled completely dry, the brand, now little more than a name, will be offloaded to a non-competitor (like a big box store).

Probability: 75%

TaylorMade and Adams Co-Exist as Separate Brands: Everything remains business as usual. Adams does what Adams does, and TaylorMade does what TaylorMade does. Both companies share technology and continue to innovate. Adams, backed with corporate dollars and improved marketing becomes one of the biggest names in golf. It's a win/win for everyone; both the businesses, and the consumer.

We'd love things to play out like this, but we don't see it happening. For this to work, TaylorMade would have to assume tremendous risk and take on a challenge that few have ever endeavoured to even try. Simply put, they would have to position Adams as the #2 brand in all of golf, while ensuring no part of the lineup becomes #1.

Think about it for just a minute. If I'm Mark King, or anyone else high up in the chain of command at TaylorMade, my one absolute rule is that we do nothing to jeopardize the status of the TaylorMade brand. My gear is always #1. What that means is that TaylorMade's equipment is always better than Adams's. If there's even a small chance that a piece of Adams gear could outperform equivalent TaylorMade, it doesn't get released (or it gets released with a TaylorMade logo).

How long would it take for consumers to get wise to this? If I know TaylorMade is always better than Adams, why would I buy it? And if the consumer isn't buying, why keep the brand around at all?

Probability: 7%

TaylorMade and Adams Target Specific and Distinct Market Segments: The press release hinted at this scenario. Rather than risk unnecessary competition between its own brands, TMaG shifts the focus of the Adams brand exclusively to seniors, women, and game-improvement in general. The technology that would otherwise have been part of Adams hybrids, fairways, and drivers, is absorbed into TaylorMade products. The Adams team continues to innovate, but the final products all bear the TaylorMade name and logo.

Though this model could continue forever, it's just as likely that this scenario provides a stepping stone to the first scenario. Functionally, it makes little sense. By keeping the brand separate, while at the same time only targeting specific market segments, you end up with two distinct brands, neither of which offers a full complement of clubs.

Probability: 5%

Adams Becomes the Proving Ground for New Technologies (The Titleist/Cobra Scenario): Not too long ago Cobra served as the proving ground for Acushnet's new technologies. Cobra, viewed as a brand for the everyday or average golfer would develop and release new technologies. Only after those new technologies were field tested would they be rolled into the Titleist clubs which have traditionally targeted the more accomplished golfer.

While this scenario makes a lot of sense given Adams position as an innovator, the probability of TMaG placing Adams in the Cobra role is small. The relationship between Cobra and Titleist worked because of Titleist's position in the market. In this case, both Adams and TaylorMade already have well-established lines for the average golfer. While Adams would have no problem sliding into a role as the innovation arm of TaylorMade, it would likely require TaylorMade to focus on a particular market segment. That's probably not going to happen, nor would they likely risk Adams being viewed as the more innovative of the two companies.

Probability: 3%

TaylorMade and Adams Product Lines Merge Under a Single Umbrella-ella-ella (the Rihanna Scenario): Let's be clear, this scenario would mean the end of the Adams brand. The club lineups would functionally merge with clubs from one side of the company addressing weaknesses in the other (though neither has produced a top-selling wedge in years), but it all happens under the TaylorMade name. It's a scenario I happen to like quite a bit, and one I believe has the potential to create the absolute single best equipment lineup in all of golf, but it's not necessarily simple to implement.

For this to work there would have to be a major streamlining effort. Both companies already crank out enough product for two companies as it is. When it comes time to trim some of the fat, you can bet corporate politics will be a major factor in deciding what goes into the lineup. Do you think anyone inside TaylorMade's current R&D team would willingly concede that Adams makes a better player's iron? Do you think the Adams guys would be happy about being told TaylorMade's driver is better?

Even if they tried it for a little while, like many of the other scenarios, this one likely ends with the extinction of Adams Golf.

Probability: 10%

YOUR THOUGHTS???