Centroid PE sees complication in TaylorMade apparel business deal

Local PEF's inexperience with huge M&A deals is partially blamed

By Anna J. Park

Local private equity firm (PEF) Centroid's acquisition of global golf brand TaylorMade has hit another stumbling block, this time over a domestic licensing deal.The PEF has partnered with Korea's mid-sized fashion company F&F Holdings, along with other financial investors, and they completed full payment for the buyout earlier this month. Centroid's partnership with fashion company F&F Holdings, known for its popular clothing brands MLB and Discovery, shows the PEF's plan to expand the clothing business of TaylorMade.However, Hansung F.I, a locally headquartered clothing company with expertise in golf apparel, announced earlier this month its own licensing contract with TaylorMade for selling clothes in the Korean market. The clothing company also started full-on advertising recently, opening a website for the sales of the clothing. It also signed a sponsorship contract with KLPGA golfer Yoo Hyun-ju. Hansung F.I said TaylorMade chose the company as its apparel business partner in July, and the contract will be effective for 10 years.At first, both F&F and Centroid told local media outlets that Hansung's contract will not hinder their business plans. An F&F official said even without a local license, the company can still operate in the global market. The official also added that there's room for further negotiation regarding domestic licensing. Centroid Investment officials also said the licensing deal is already a known factor in the market and therefore won't impact the acquisition deal. But a closer look at the deal now reveals that Centroid, from the onset of its investment plan to attract key investors, has plans to terminate the licensing partnership between TaylorMade and Hansung.According to Centroid's information memorandum distributed to key investors in June, "the license contract with Hansung F.I will be terminated in the next year, following discussions between Centroid and TaylorMade Group."Furthermore, when Centroid was in close discussions with local fashion company The Nature Holdings about becoming a joint investor ― the plan was later changed to the partnership with F&F ― Centroid said it would allow the company to operate its clothing business in Korea, as long as it wouldn't violate any existing contracts.Stressing its strategy of focusing on its apparel business to increase the brand's revenue, Centroid said it plans to increase the current 2 percent of the global golf brand's clothing revenue, which is a very small percentage compared to other competitors like Titleist or Callaway.Market watchers note that F&F joined the deal by injecting a total of 500 billion won ($425 million), a much larger amount than previously discussed with The Nature Holdings, and the fashion company would expect more benefits in the business. Although F&F said the company is already aware of the deal between TaylorMade and Hansung, market watchers expect the local apparel business license could likely end up going to F&F.

Yet this would be unacceptable for Hansung, which prepared and invested in the clothing business. "The contract signed with TaylorMade is valid, and Hansung F.I has been operating under its long-term business plan for TaylorMade Apparel," an official from Hansung F.I said, adding that the company was not officially notified that Centroid's acquisition of the golf brand would lead to the termination of the deal.Centroid said it aims to find the best solution to develop the apparel business in both domestic and overseas markets, through close consultation with TaylorMade. While some expect a legal battle between the two parties, some market watchers point out Centroid's inexperience in large M&A deals as the cause of the problems. The company is rather a small local PEF without any previous experience with billion-dollar-level deals, and it is said that this lack of expertise in dealing with specific issues of acquisitions creates some unwanted noise. Centroid's sudden change of its strategic investor partner from The Nature Holdings to F&F in July was not a smooth process, either.