Dick’s Sporting Goods to Buy Golf Galaxy

Nov 15, 2006 5:13 AM  By

Pittsburgh-based Dick’s Sporting Goods is hitting the links. The sporting goods retailer on Nov. 13 has agreed to buy Eden Prairie, MN-based cataloger/retailer Golf Galaxy for $225 million. The agreement calls for Dick’s to pay $18.82 for each share of Golf Galaxy, a premium of 19% above its closing price on Nov. 10. Dick’s will finance the transaction using its existing credit facility.

Golf Galaxy operates 65 stores in 24 states as well as a Website and a catalog. The company generated $250 million in sales during the 12 months ended Aug. 26, with catalog and e-commerce sales accounting for only about 2%. Dick’s has reached $2.6 billion in annual sales at its full-line sporting goods stores. Net income for Dick’s third quarter was $7.8 million on sales of $708.3 million.

John Lawrence, an analyst who covers Golf Galaxy for Memphis, TN-based investment firm Morgan Keegan, says the deal wasn’t a “real surprise,” adding that it makes fiscal sense for both sides. “You look at the marketplace and look at the opportunities now for Golf Galaxy to focus on with the support and leverage of a much larger retailer,” he says. “This will allow them to focus on long-term growth.”

And growth is something that Golf Galaxy, founded in 1997, is becoming more familiar with. Last year it increased its revenue roughly 50%, and it’s predicting similar growth this year, with plans to open at least 16 new stores in fiscal year 2007.

“Obviously for Dick’s, [the acquisition] eliminates competition,” Lawrence continues. “It’s very fragmented on the specialty side of golf. They view it as a growth category, and Dick’s gets jump-started by a business that’s been through it.”

Golf Galaxy had made a purchase of its own earlier this year. In March it acquired $24.5 million cataloger/retailer GolfWorks for approximately $4 million in cash and 150,000 shares of stocks valued at approximately $4.5 million. (See ”Golf Galaxy to Acquire GolfWorks.”)