Finding a great sports and fitness club or business to buy is a lot hard work. Most buyers review dozens of deals each month, and many buyers will evaluate hundreds of deals before they find a club worth acquiring.
Part of the challenge is that there are far more buyers than sellers of quality clubs. Consider this: Sports Club Advisors has over 2,000 registered buyers who want to receive notices when we have a new opportunities for sale, but in most years we only bring 6-10 new clients to market each year.
The problem is not just limited to a lack of sports and fitness club businesses for sale. Buyers routinely complain about how hard it is to find a transaction that is worth pursuing. Common complaints we hear from buyers include:
- Unrealistic expectations of value on the part of sellers
- Inaccurate or incomplete financials or operating data
- Hidden liabilities like unresolved member complaints or improper payment of independent contractors
Given these challenges, how can you increase your chances of finding a great sports or fitness club to buy? Here are six tips to help you with your search.
Tip 1: Develop Clear Criteria
The best buyers act quickly. With so many buyers looking, and so few quality deals coming to market, you need to make decisions quickly. To speed up your ability to evaluate the deals, put together a clear list of your acquisition criteria. This list will act as your guide to help you determine which deals are worth pursuing and which deserve a quick pass.
Putting together a clear, well-thought out list of acquisition criteria will take some time and effort.
Your acquisition criteria should be your objective guide to evaluate opportunities, but you should always apply a subjective element to your evaluation as well. This should be your basic “gut check” about a business. If the business meets your objective criteria, do you like and trust the owners? Do you like and trust the staff? Do the members and clientele seem reasonable? If you decide you do not like a business for some reason, offer the seller or broker quick feedback and move on.
Tip 2: Register with Online Marketplaces and Brokers
There are many ways to find fitness clubs or businesses for sale, and club brokers represent only a portion of the fitness club or businesses that are for sale. Finding a good fitness club or business for sale is a numbers game. You need to look at as many deals as possible in order to find the perfect acquisition target. Registering with online marketplaces and brokers will provide alerts on any new listings. This will make your daily inspections relatively easy. To register with Sports Club Advisors, simply fill out our Buyer Registration form, and don’t forget to bookmark our Active Engagements page on our website.
Tip 3: Approach Fitness Club or Business Owners Directly
Many buyers limit their search for a sports club or gym to two places: marketplaces and brokerage firms.
However, why not write directly to fitness club or business owners to see if they would be willing to sell their fitness club or business? There are pros and cons to this approach. The pros are:
- You Get Better Deals. Writing directly to club or business owners allows you to reach club or business owners who never considered selling. It’s a numbers game so if you write enough people, you may find a club or business owner who is an absentee owner and no longer actively involved in their club or business. For these owners, selling their club has probably been on the back of their mind and your letter might just incent them to start a discussion with you.
- It Simplifies Things. When you approach an owner directly to buy their fitness club or business, it makes it simpler for the owner. He doesn’t have to hire a broker or try to sell it himself. He doesn’t have to worry about the club being “on the market” and having his employee find out. In addition, a direct transaction is often more relaxed and focused on creating a win/win transaction.
- Less competition. Sports Club Advisors has over 2,000 buyers actively looking for a fitness club or businesses to buy, but we only bring 6-10 clients to market each year. So when you do look at a good listing, from a broker you are likely competing with dozens of buyers. When you approach someone directly, you usually have the luxury of less competition.
However, contacting club or business owners to see if they would be interested in selling has it downsides too. Here are some of the cons:
- It is a numbers game. Many of the buyers we’ve worked with report several challenges, beginning with getting a good list. Buyer often say that it takes them weeks to put together a list of targets that they think will fit their acquisition criteria. Since a good response rate is between 1-3% depending on whether you call or write, that means you will need to call or write email 100 people just to get 1-3 responses. Then they need to find the time to call or send letters to 200-300 potential targets and then find the time to follow-up with each of them a month later.
- Rejection is Part of the Game. Because the response rate is between 1-3% that means that 97-99% of the owners you contact will simply ignore you. The polite ones might respond by telling you they are not interested. The less polite ones will yell at you and tell you not to bother them.
- Opportunistic Sellers are Poorly Prepared. When you find an opportunistic seller he or she will typically not be prepared. They may not have financial statements and operating data prepared, reviewed and ready to be shared. This can drag out the process and you may find yourself investing a lot of time and energy to collect the information to review only to discover months later that the opportunity does not meet your acquisition criteria.
- Sellers may be unrealistic. When you approach a seller unsolicited, it naturally puts them in the “driver’s seat”. As a result, a seller may have no idea what their club or gym is worth and as a result may pull a number out of the sky, or figure the club must be worth enough to allow them to retire. Either way, even if the club meets all of your other criteria the seller may have unrealistic expectations of value that you cannot change.
Tip 4: Network, Network, Network
Wouldn’t it be nice if deals just came to you? Well, they can if people know are seriously interested in buying a fitness club or businesses and you have the money to do so. The best way to get known as a serious buyer is to network within the industry.
Conferences and networking events are a good way to meet many people and get the word out, but it can be expensive, especially if you are traveling around the country. Instead, we recommend that you network by telephone and email with a targeted list of industry leaders. Send them your acquisition criteria. Tell them how much money you have to invest and the source of your capital. Then stay in touch with them on a monthly or quarterly basis to update them on your search.
Tip 5: Hire a Merger & Acquisitions Advisor to Help You Source and Evaluate Deals
As previously mentioned, finding the right deal is a volume game. You could easily spend most of your time reading through email notices, browsing online marketplaces, and networking. Rather than spend your time doing this, you might find it simpler to hire a club broker or mergers and acquisitions advisor to conduct a buy-side search for you. Follow the tip above and develop a criteria checklist. Then hand this list over to the club broker and have them find deals for you. They can either run a “passive” search or a “pro-active” search for you. In a passive search, they will screen their prospects and active clients, sort through notices and online marketplaces and contact you when they have something that they think might interest you. In a pro-active search, they will do the above, but also pro-actively reach out to club owners on your behalf using a combination of letters, emails and cold calls to find opportunities for you that meet your acquisition criteria.
Tip 6: Always Explain Why You Are “Passing”
Because buying a club or business requires evaluating lots and lots of deals, you’ll likely make a few mistakes along the way. One mistake many buyers make is to dismiss a deal based on a misunderstanding of the business. If you mistakenly pass on a good opportunity it could take months to find another good club or business. The best way to avoid this mistake is to always tell the broker or seller why you are passing or not pursuing a particular business. Not only will the seller or broker appreciate the feedback (brokers will often give preference to buyers who give regular feedback), but if you are mistaken, you’ve given them the ability to help correct any misconception and could save you a lot of time and aggravation.
Finding a great club or business to buy is a numbers game, but it is also about being smart and designing an intelligent search and using the right resources to help you identify and evaluate deals properly. Most importantly, be patient. It can take 6-24 months to find a quality club or fitness facility for sale, but when you do, you’ll be glad you did.Read More
I was recently approached by the owner of a fitness studio/CrossFit affiliate who was interested in selling. When we prepared a Market Assessment for her I could tell she was shocked that our estimate of the fair market value of her gym was so different from what she was expecting.
I won’t speculate as to how she determined the value of her gym, but I thought it would be helpful to summarize how small format fitness studios and CrossFit gyms are valued so you can have realistic expectations before you decided to either buy a gym or sell one.
The hard and simple truth is that 80% or more of the of gyms we evaluate are not set up to be saleable. That means that 80% of the time no buyers will be willing to submit an offer or if they do sell, they will sell for much less that what the owner was expecting.
The number one reason gyms are not saleable is they are founder centric, i.e., the gym owner or founder does all the work. She teaches the classes, runs the books, handles the admin, does the social media, and builds the membership base.
In the simplest terms, gyms like this are basically offering a buyer an opportunity to buy a job.
If you own a fitness studio or CrossFit gym and want to receive anything beyond the book value of your business, you’ll need to make sure it can run smoothly without you. I mean this literally. You need to be able to hang up the phone, turn on your vacation auto-responder, and leave for a 1-2 month vacation without the business missing a beat. If your gym or studio cannot run without you, make sure it can before you think about selling.
Once your gym can run on its own, a buyer is going to be looking at two things: your bottom-line cash-flow and year-over-year earnings growth. This means they want to see the business is profitable, and they want to see those profits are growing.
The more money the gym makes and the faster that number is growing, the more a buyer will pay. This is because buyers are investors who are seeking a return on their investment. Buyers are investing in the future cash flow or profits of your gym or studio. The expected amount of those future profits determines how much they’re going to be willing to pay today.
To determine the value of your gym, buyers will apply what is referred to as a “capitalization of earnings” or an “earnings multiple” approach. You’ll often hear gym owners referring to a “2x” or “3x” or “5x” earnings multiple when they acquire a business. What that means is they are paying two times, three times or five times, the yearly cash flow of the gym to buy the business. Buyers tend to pay a lower multiple for gyms with profits that bounce around from year-to-year and that have a record of low historic growth. On the flip side, they tend to pay higher multiples for gyms with steady profits and above average growth prospects.
To be candid, the growth prospects for most individual yoga or fitness studios or CrossFit gyms are limited. You can only have so many clients before you need to invest more money to expand your physical space or open a new location.
Because the earnings potential of most gyms is limited by the number of people that you can fit in your gym and the number or classes or programs you can offer, the earnings multiple buyers will pay for a gym is also limited. Most likely, you’d receive something in the realm of a 2x or 3x earnings multiple, provided your gym can run without you and generates more than $100k a year in profit.
What does this mean?
Your gym certainly has value, but it is important to realize that your gym is probably not the golden retirement nest egg you were hoping it would be.
If you are still committed to selling, focus on building a solid, self-operating business. Focus on developing a good management team and trainers and being a good boss. Work hard to acquire and develop loyal clients and introduce new initiatives to help make your business unique. Then focus on improving your earnings each year. When you have completed these tasks you will have something to sell, but by then you may just decide that if the business can operate without you, you may want to simply retire and manage your gym as an investment and not exit at all.
Click here for your Free Opinion of Value or give us a call at (888) 270-0028Read More
When you try to sell your sports or fitness club, the most common feed back you will get from potential buyers is “no thank you”. The fact is, buyers are quick to say “no” and slow to say “yes” when it comes to evaluating any business – and health, fitness and sports buyers are no different. Buyers are quick to say “no” because they want to make the best investment possible, especially because most buyers will only have one shot at making a successful acquisition.
Over the last 20 years we have learned that buyers have a series of hot buttons or checklist items that they want to see when evaluating a business.
- Growing (or at least stable) revenues and earnings
- Growing industry or market segment overall
- Positive demographic trends
- Stable club membership or customer base
- Diversified revenue streams
- Low customer & vendor concentration
- Experienced and committed management team willing to stay with the club or business after the sale
- Well maintained assets and facilities
- Margins that are above (or at least equal to) industry averages
- Realistic expectations of your business or club’s value
These ten items are the basic value drivers of any business. If your club or fitness business can answer yes to these items buyers are likely to be interested in your business. If not, take some time to fix the value drivers that are getting in the way of your successful exit. Addressing them before the sale will greatly enhance the value of your club and the likelihood of a successful sale.