07/09/2004
Author: Stacey Higginbotham, Austin Business Journal staff
After nearly three years of working with Austin's FrogTrader Inc., Carlsbad, Calif.-based Callaway Golf Co. has acquired the company for about $20 million in cash.

FrogTrader, which does business as Trade Up Commerce, has sold Callaway's used golf clubs to consumers since September 2001. It also helps liquidate Callaway's used equipment through it's Trade In! Trade Up! program.

"The closer affiliation will better position Callaway Golf to stimulate purchases of new clubs by growing the Trade In! Trade Up! program, and also will allow Callaway Golf to better manage the distribution of its pre-owned golf clubs and the Callaway Golf brand," says Ron Drapeau, Callaway's chairman and CEO.

David Schoffman, president and CEO of FrogTrader, says he will remain head of the subsidiary, which hasn't been named yet. A source puts the purchase price at $20 million; Schoffman declines to comment on that aspect.

Schoffman says the deal provides job security for the company's employees and establishes a presence in Texas the No. 1 name in golf. He says the deal was completed in mid-June.

Schoffman declines to disclose FrogTrader's revenue figures.

The company, which was founded in 2000, employs about 60 people at 8220 Crosspark Drive in East Austin. However, Schoffman says the company is negotiating for about 40,000 square feet in Manor, with the potential to expand.

He says the company is expected to add about 50 employees in the next year and a half as a result of the acquisition.

Callaway (NYSE: ELY) is famous for its Top-Flite golf balls and its Big Bertha drivers. It reported $814 million in revenue for 2003 and net income of $45.5 million.

Kent Lance, a partner with Austin-based real estate and investment firm Hill Partners Inc., says the acquisition is great for both investors and Callaway.

"They have extremely good credibility and came up with a really unique way to sell Callaway's products," Lance says. "In the past, Callaway just melted down their old clubs but to liquidate them online -- this created a new stream of income for Callaway."

Lance declines to disclose how much Hill Partners had invested, but he says it came in the form of offset real estate costs and cash.

The market for used clubs is a growing one, says Fred Quandt, vice president of general merchandise for Austin-based Golfsmith International Inc. Golfsmith operates 42 retail golf stores around the country, as well as selling through catalogs and a Web site. While Quandt declines to disclose sales numbers for Golfsmith's trade-in program, he says it's successful -- particularly in its demand for high-quality brands such as Callaway.

"We created the program as a solution for the consumer to be able to trade in the old and trade up to new," Quandt says.

"It's increased the velocity for our new club sales, and it's helped us reach a secondary market that's incredibly viable and the reason why eBay is doing so well with golf."

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