Revisiting VSNT and thinking through pubco acquisitions

Full Swing And A Miss

Comcast spun off Versant in January of this year, and I wrote about the perils of being involved in a melting ice cube situation with lots of operating AND financial leverage:

In a note, I quoted:

It seems that Versant is taking the “transformative acquisition route”:

Versant Media Group, the owner of cable networks including CNBC, MS NOW and the Golf Channel, has agreed to acquire golf simulation company Full Swing from private equity firm Bruin Capital for about $530 million in cash.

The deal follows a template CEO Mark Lazarus has outlined to investors since Versant began trading as a public company in January following its spinout from Comcast.

Versant has been investing in nontraditional media businesses that broaden the scope of the brands it already owns. Earlier this year, the company acquired StockStory, an AI-powered tech platform that provides financial analysis, market insights, and stock recommendations, for CNBC.

The company’s golf business already owns digital media platform GolfPass and tee-time reservation company GolfNow.

In May, Versant reported that revenue for its platforms business, which includes GolfNow, Fandango and some recently launched direct-to-consumer units, was up 9.5% to $192 million. The company has called out its growth in its news and sports units. Executives have said they aim to rebalance Versant’s revenue mix so that eventually 50% of it is derived from digital, platform, subscription, ad-supported and transactional businesses.

“Full Swing is exactly the kind of strategic platform that reflects how we are building Versant: investing in our core markets, extending the reach of our iconic brands and creating new ways to serve passionate audiences,” Lazarus said in a statement.

Full Swing develops and sells golf and baseball simulators for consumers, sporting goods stores and athletic training facilities. Both recreational and professional athletes use the technology. Bruin Capital purchased Full Swing in 2021 for $160 million, Sportico reported at the time.

“Joining Versant gives us the scale and distribution to bring our technology to even more golfers, athletes and fans,” Full Swing CEO Ryan Dotters said in the statement. Dotters will stay at Versant and will report to Will McIntosh, president of digital platforms and ventures.

The transaction should close before Dec. 31, the companies said in a statement.

— CNBC’s Lillian Rizzo contributed to this article.

I have evolved as an investor. I would like to stop being skeptical about every acquisition made by trigger-happy, poorly incentivized (“just grow EBITDA!”) management teams. But it’s hard. I’ve written a short treatise to myself to stay objective in these matters. I don’t want to be a hater that poopoos a YouTube or Instagram style acquisition that’s a total home run, but I don’t want to be a drink-the-Kool-Aid “management are geniuses” bozo:

• Selection effects: Every target is always dolled up and overpriced. If it was that great it wouldn’t be for sale, and especially not to YOU (yes YOU!)

• Some work out as advertised, most don’t.

• Corporate M&A teams have a bias to act

• Everyone overpays for control. Even Buffett overpays (PCP, Lubrizol, maybe even BNSF)

• Some work out for “bankshot” reasons i.e. an outcome that wasn’t underwritten at all

  • Maybe you’re smart enough to see the bank shot when neither party sees it! Neither Blockbuster nor Netflix saw the future 100% clearly.

  • In this respect, sometimes hoodwinkers become the hoodwinked

  • Could Zuck/Google have seen the full potential of Instagram/YouTube? I don’t know if anyone saw it. I remember questioning the Instagram acquisition at the time.

• Berkshire started as a melting ice cube “cash box” that would go on to acquire disparate businesses.

  • This is an incredibly rare outcome.

  • Cash boxes have a bad track record

• Most deals getting done now are strictly defensive

  • “Acquihires”, buy and shut down, buy and forget about

  • This is the natural consequence of executives embracing CYA vs. risk-taking

  • “Big acquisitions have a bad track record” vs. “I want to make my mark on this company”/”I will be defined by this deal”

So it seems like the Full Swing deal is CEO Lazarus’s attempt to raise this company from its certain death as a cable networks business. Bruin Capital acquired Full Swing in 2021 for $160M. Selling it to Versant for $530 million five years later implies a ~3.3x for Bruin. I’d be interested to see just exactly where the value creation came from. It’s a fully integrated hardware and software company, similar to how Peloton has inventory on the balance sheet and sells its software through the device.

There’s Golf Channel, GolfNow (tee time booking), and GolfPass (subscription lifestyle/instructional platform) already in the Versant portfolio. They have a golf-centric customer base that they can upsell to a Full Swing device setup. There is a strategic fit here. I’d be interested to know the overlap in customer bases among all the products here pre-acquisition. Perhaps there’s a big gap in folks who subscribe to Versant’s services that don’t already own a golf simulator in their home— very possible that there’s at least a half million people that could be upsold. Maybe with a bigger balance sheet Full Swing can offer better financing for golf simulators? They’re $40-60K a pop, so maybe this is a legitimate market to tap into.

I’m not as skeptical of this deal as I initially was. It’s a desperate double-down on one product line that Versant does well (golf) and it could be an avenue for actual growth. But it might work to show growth. The game of golf is growing and skewing younger. The cable networks business is baby boomer-driven. Seems like this is an intergenerational hedge to the rest of the Versant business decaying. There’s another public company TruGolf that makes larger scale simulators for warehouses and other businesses. This is a full-fledged golf simulator business attached to a lifestyle brand.

It’s not enough to get me interested in Versant stock— I’m still not interested in riding out the decline of the networks— but it’s certainly ONE vision for the future of this pile of assets.