The evolving impact of the coronavirus is being felt everywhere—but especially in the health and fitness industry as social distancing and shelter-in-place become the new norms. This is a time of uncertainty in our personal lives and in our businesses. The closest thing I can compare it to is the uncertainty everyone felt in October 2008 as the financial crisis was unfolding.
Then, like now, business owners are seeing the values of their business plummet as clubs close indefinitely and members cancel their memberships in droves. Smaller health clubs and fitness centers are naturally more vulnerable in an economic downturn, but everyone in the health and fitness industry is affected in one way or another. Strategic buyers, investors, sellers, business owners, and business brokers are all trying to understand how this will impact them, and what they can do to mitigate the consequences.
Reflecting on the financial crisis of 2008-2009, however, helped me identify a few things that are likely as we deal with the impact of coronavirus on the M&A market and business sales.
Like in 2008 and 2009, M&A activity will most likely contract significantly over the next 3-4 months as the volatility in the stock market will likely put the M&A market on hold. For deals in the early stages, there will be a lot of anxiety on the part of sellers and a lot of caution on the part of buyers. As a result, we expect that many buyers and sellers will press the pause button to wait and see how the situation unfolds over the next few months.
But there are a lot of indicators that when the coronavirus scare is behind us, the M&A market will rebound with gusto.
“I’m bullish on the outlook for M&A activity in the long term once the financial markets adjust to the ‘new normal’. There is an unprecedented amount of capital that needs to be deployed, interest rates are at record lows, and the federal government’s stimulus package should make borrowing even easier. At the same time, the record high valuations that we’ve seen over the last year or two are likely to decrease, which will make financing acquisitions less risky and fuel a strong increase in M&A activity.”
Richard Jackim, Managing Partner, Sports Club Advisors, Inc., and Jackim Woods & Co.
If you own a fitness boutique or a health club and are thinking about selling, what does all this mean to you? First and foremost, it’s important to remember that while the next few months may be painful, and it may take you six months to a year to build your business back up to its 2019 levels, but the fundamental value of your business is likely still intact. If you were waiting for the market to peak before you sold you missed the window. But that doesn’t mean your business is unsaleable or that it has no value. The value is still there because buyers buy companies for the future cash flow that business will generate. That means buyers take a long-term perspective. If your business is fundamentally sound, it is very likely that its value will rebound once the economy and our lives return to the new normal.
Many of the business owners I’ve spoken to in the last few weeks believe that the current market conditions will scare away buyers. That is true in the short run, but savvy financial and strategic buyers recognize the short-term nature of this crisis and see this as a good opportunity to buy a good business at a lower multiple of EBITDA than last year.
If you’re thinking of selling your health club or fitness center it’s important to work with someone who understands the dynamics and changing motivations of sellers and buyers to advise you during these uncertain times. Below are our recommendations for business owners to take over the next 2-3 months if you are thinking about selling in the next few years.
- Focus on Exit Planning (talk with us about our formal process that can use this time to help you and your business get prepared for sale)
- Get a valuation of your business (so you understand how much your business is worth)
- Understand what you can do to improve the value of your business and make it more attractive to potential buyers
- Talk to your financial advisor to understand how much you need to retire
- Work with an M&A advisor or business broker to begin putting together a data room and formal marketing materials so you can hit the ground running when the market recovers.
Our team is comprised of experienced investment bankers and M&A professionals who literally wrote the book on exit planning. We helped over three dozen companies between 2008 and 2010 help get ready for sale and then sold them for top dollar when the market recovered. We will provide you with a value-focused, hands-on approach to help you develop a strategic exit plan that allows you to exit your business on your terms and for its highest possible value.
If you are interested in selling in the next three years and would like to talk to a licensed business broker and M&A professional about how this crisis affects your options, please feel free to contact Rich Jackim for a FREE, confidential conversation at firstname.lastname@example.org or at (224) 513-5142.Read More
As was the case last year, COVID-related federal stimulus benefits are expected to be a powerful catalyst driving deal activity in 2021.
On December 27, 2020, Congress passed the Consolidated Appropriations Act, 2021, a $2.3 trillion stimulus bill, with $900 billion targeted specifically for COVID-19 relief. A portion of these funds will be used to extend the popular 2020 CARES Act SBA Debt Relief program.
According to Rich Jackim, Managing Partner of Sports Club Advisors, the extension includes significant benefits that provide buyers with powerful incentives to acquire a business in 2021, including:
- Six months of payment forgiveness for SBA 7(a) loans closed after February 1, 2021, and before September 30th, 2021. This includes principal and interest up to a maximum of $9,000 per month. That’s a $54,000 benefit to buyers.
- The SBA will waive the guaranty fee that must be paid by borrowers. This fee is typically around 3% of the loan amount and will now be zero for loans closed before September 30th, 2021. That’s an average saving to buyers of approximately $4,500.
- The SBA is increasing the amount of loan guarantees to lenders from 75% to 90%. This will decrease the risk to lenders and help ensure liquidity for deal financing.
Jackim urges buyers who want to take advantage of the extension to learn from the mad rush to meet last year’s deadline. It required tremendous coordination between sellers, buyers, counsel, intermediaries, and lenders. “The lesson buyers learned last year is not to procrastinate and try to close at least 30 days before the deadline to accommodate potential delays,” says Jackim.
What does this mean for sellers? If you are thinking of selling your business, now may be the right time, despite the pandemic. In addition to record low interest rates, the SBA Payment Forgiveness Program provides buyers with extremely low financing costs. Last year we sold two businesses for over asking price because the buyers were able to afford to pay more due to the 2020 SBA Payment Forgiveness Program. Once the pandemic is under control, it is unlikely buyers will have access to the same generous funding they have today.
To learn more about taking advantage of the 2021 SBA Payment Forgiveness Program contact Rich Jackim at 224-513-5142 or at email@example.com.Read More
The first face-to-face meeting between a buyer and seller is one of those “make or break” meetings. The best way to prepare for it is to think of this meeting like a first date. The dynamics are very similar. You’ve spoken on the phone and you’ve emailed. Now there is enough interest that you both want to meet. Like a first date, the goal here is to get to know each other but, I recommend you do the following three things to ensure this meeting goes as well as possible.
Preparation means three things. First, have a plan for the meeting. Where will you meet? When will you meet, during business hours or after hours? Who do you want to attend from your side? Do you want to have handouts or a formal presentation? Will you be serving refreshments or snacks? Do you know who the buyer is bringing to the meeting? Will you give the buyer a tour of your business? Does the business show well or do you need to do a little housekeeping before buyers visit? Does it make sense to give buyers samples of what you make or sell?
You should determine these things, not the buyer. Once you have a plan send your plan to your buyer. Buyers need to understand how your sales process works and what is expected of them during each step of the process.
Determine your Desired Outcomes Ahead of Time
The primary goal of this initial meeting is to show the buyer that everything you said about your business in the offering memorandum was accurate so they have enough confidence in you and your business to submit a purchase offer or Letter of Intent (LOI) to buy your business. However, you may also have several other goals as well. Below is a list of some typical secondary goals.
- Confirm the buyer’s financial qualifications by asking questions like how much money he had available to invest, what is the source of these funds, where is the buyer in discussions with potential lenders, what is the buyer’s credit score, etc.
- Confirm the buyer’s business experience by asking questions like, tell me about the other businesses you’ve owned, or tell me about your previous business management experience.
- Confirm the buyer’s interest in your business by asking them what they think about your business, how does it compare to other businesses they’ve looked at, does it fit what they were looking for?
- Assess the buyer’s character. It’s important that you sell your business to someone you like, respect, and admire. Chances are if you like the buyer, so will your employees and customers. Trust your gut. If something doesn’t feel right about the buyer, it probably isn’t
- Determine the buyer’s timeline. Business brokers are fond of saying “Time Kills All Deals” and it’s true. Another important goal is to determine how quickly a buyer is prepared to move and to determine if their timeline and your timeline line up.
Have an Agenda
Preparing an agenda ahead of time will help ensure that you accomplish your goals for the meeting. A sample agenda for a successful buyer meeting might look like this.
- Introductions & Welcomes – 10 minutes
- Buyer Background. Ask Buyer to describe their background, experience and why they are looking to buy a business – 10-15 minutes
- Seller Background. The seller describes how the seller got into the business and why they are exiting – 10-15 minutes
- Business Update. The seller gives the buyer a summary of how the business has performed since the offering memorandum was prepared and provides the buyer with a current year-to-date P&L statement. 10 minutes.
- Q&A. Seller to answer any questions the buyer has. 15-30 minutes
- Tour. Give the buyer a tour of the business and continue to answer questions throughout the tour. 15-30 minutes.
- Buyer Feedback. Return to your office or conference room and ask the buyer what they think. Discuss what they like and what they didn’t like. Get a list of any additional information the buyer would like from you.10-15 minutes.
- Next Steps/Action Items. Tell the buyer what your timeline is and if they are interested, the next step is for them to submit an offer or Letter of Intent. Determine if they plan to submit an LOI and if so, when they plan to do it. 10-15 minutes.
Of course, this is just a suggestion. Feel free to modify it to suit your particular situation. However, please note that the entire meeting is designed to last between 1 1/2 and 2 1/2 hours. Try to keep the meeting to around 2-3 hours, max. Sometimes, the chemistry between a buyer and seller is great and the conversation can continue for four or five hours, but I don’t recommend it. If that’s the case, I recommend scheduling a second meeting rather then let the first meeting go for more than three hours.
Asking and Answering Questions
Now that you have an agenda, the next steps if to prepare a list of questions you want to ask the buyer. Keep this with you during the meeting as a reference so you don’t forget any of your questions.
When responding to a buyer’s questions, try to only answer the question asked. It’s best to keep your answers factual and not share long war stories or go off on tangents about things the buyer didn’t ask about. For example, if a buyer asks what are your Average Days Receivable is, just answer the question. Don’t tell a story about the one customer who refuses to pay within 30 days, and often stretches you out to 190 days, so you told him he now needs to pay in full when he places an order.
Building a Positive Relationship
It goes without saying that you should do everything possible to keep the meeting polite and respectful and to avoid any discussion about politics or religion, which often can be hot points.
Nothing builds a more positive relationship than truth, so make sure that all of your answers are truthful, accurate, and complete. While you are trying to sell your business, you don’t want to come across as a salesperson. Let y our business sell itself. The best way to do that is to as real and as honest as possible.
For example, if a buyer asks who your competitors are be truthful. Every business has some level of competition. So don’t pretend that your company has no competition. This will simply make the buyer skeptical and make him wonder what else you may be fibbing about.
One last word of advice. Be sure to do your homework on the buyer ahead of time by asking the buyer to send you a copy of the buyer’s resume before your meeting. That way, you can do a Google search on the buyer and the companies he’s owned or worked for so you can assess during your meeting how truthful the buyer is being with you.
If you follow this advice, you will greatly increase the odds that your first meeting with a buyer will accomplish all of your objectives.Read More
If you are thinking of selling your business, one of the important issues to think about is whether or not to provide seller financing. Seller financing is an essential component in the sale of most small to medium-sized businesses for several reasons. First, many potential buyers don’t have the necessary cash to bridge the gap between your asking price and the amount of money they can borrow from a bank. Second, even if they do, buyers are often hesitant to invest every dollar they have into a business that to them is a new and untried venture. Third, most buyers (and their lenders) feel the best way to ensure a smooth and successful transition from one owner to the next, is for the seller to have some “skin in the game” after the deal closes. That way you, as the seller, will have a financial incentive to help the new owner should he or she run into any hiccups during the transition period after the sale closes. On the flip side, if you insist on an “all-cash deal”, many buyers will interpret that as a sign that you are not confident that the buyer or the business will continue to be successful.
In fact, that is often the reason sellers insist on an all-cash deal and are reluctant to provide any type of seller financing. They are afraid the buyer will not be successful and they will never get paid the amount they financed. While that is certainly possible, you should also consider the significant benefits that providing seller financing can provide. Statistics show that sellers are much more likely to receive a full price offer if they provide seller financing. On average, a seller who demands an all-cash deal will only get offers of 70-80% of the asking price. Why is this? It’s because a demand for an all-cash deal signals to buyers that you don’t have confidence in them or the business, to that makes the investment feel risky. As a result, they discount the price to account for that risk. So, for example, if your business is listed at $500,000, not providing seller financing could end up costing you $100,000 to $150,000 in lost sale proceeds. That is a “guaranteed” loss. On the other hand, if you provide $100,000 in seller financing in the form of a seller note that is repaid over 2-years, you may receive some or all of that money over time. So if you consider the discounted selling price as a guaranteed loss, then any money received through seller financing is money you wouldn’t have had before.
Even with this compelling reason to provide seller financing, you might still be hesitant. If that’s the case, it’s important to note that seller financing has advantages in addition to simply increasing the proceeds you receive. These include:
- Providing seller financing greatly increases the chance that your business will sell.
- The interest you receive on a seller-note is in addition to the selling price. For example, a $100,000 seller note at eight percent paid over three years, provides you with an extra $12,000 in interest payments.
- With interest rates at their lowest level in years, you can get a much higher interest rate from a buyer than you can by putting the money in a CD or bank account.
- The taxes due on the principal amount of the note are deferred until you receive the principal payment. That means that it is taxed in future years when your tax bracket is likely to be lower than it is the year you sell your business. This can save you a lot of money in taxes.
- Financing the sale helps ensure the future success of your business, which your buyer and employees will greatly appreciate.
- Providing seller financing allows you to play a passive or inactive role in your business until the note is repaid.
Obviously, there are no guarantees that the buyer will be successful in operating the business. However, it is important to keep in mind that, in most transactions, buyers have a lot more at risk than you do. They have likely invested all of their liquid capital, provided a second lien on their home, and personally guaranteed the bank loan. As a result, they are highly invented to do whatever is necessary to ensure that the business succeeds. Although this investment doesn’t ensure the business will be a success, it means your buyer will work very hard to make it so.
The last thing to consider is that there are lots of different ways to structure any seller-financing you provide. Talk with Sport Club Advisors about the different solutions we have to that can minimize your risk and, in many cases, mean the difference between a successful transaction and one that fails.
Because of the benefits to the buyer, the buyer’s lender, the business, and the seller, approximately 80% of the deals closed last year included some type of seller financing. So, if you are serious about selling your business, consider the pros and cons of offering seller financing and talk with Sports Club Advisors about the best way to structure that financing to ensure your deal closes and you minimize your risk.
Greg Glassman, who founded CrossFit in 2000, is selling the business to Eric Roza, according to a June 24 announcement on Twitter by Dave Castro with CrossFit. CrossFit has 15,000 locations in 158 countries. Roza is a CrossFit affiliate who owns a CrossFit box in Boulder, Colorado. He previously owned Datalogix, a tech company.
The sale is expected to be completed in July. The purchase price was not revealed.
CrossFit and Glassman have faced mounting criticism from multiple groups over the last few months for Glassman’s racist and insensitive comments he made on Twitter and in a company Zoom call related to the death of George Floyd, the unarmed black man who was killed by a police officer on May 31. Glassman has also been the subject of several stories, including one in the New York Times, that alleged he sexually harassed women on the staff.
Glassman founded CrossFit along with his wife at the time, Lauren Jenai. The two have since divorced, and as part of the divorce settlement, Glassman paid Jenai $20 million for her part of the company, becoming sole owner.
On Twitter, Glassman wrote: “The world has changed, but the magnificent human machine, the proven benefits of CrossFit, and its market opportunity remain unchanged. It is time for the founder to bid adieu and find other creative outlets. I have complete faith that Eric Roza can shepherd CrossFit Inc. effectively into this new world.”
Roza posted a statement to Instagram that said, in part:
“In the past weeks, divisive statements and allegations have left many members of our community struggling to reconcile our transformative experiences in the local box with what we’ve been reading online. My view is simple: Racism and sexism are abhorrent and will not be tolerated in CrossFit. We open our arms to everyone, and I will be working hard to rebuild bridges with those whose trust we have lost.”Read More
F45 Training, Los Angeles, is being acquired by Crescent Acquisition Corp., and taken public according to an announcement issued by Crescent Acquisition. Crescent Acquisition is a publicly-traded special purpose acquisition company. The combined company will trade on NASDAQ under the name F45 Training Holdings Inc.
F45 operates a nearly 100 percent franchise model. In its seven years of operation, F45 has more than 1,993 franchises sold in 53 countries and 1,240 studios open in 40 countries as of March 31, 2020, according to a presentation on June 24 by the executive team of F45 Training and Crescent Acquisition Corp.
The company has 847 franchises in the United States and 377 studios operating before COVID-19. Sixty-five percent of its units have reopened in the United States, as of June 19.
F45 Training also has 492 additional franchises in other countries with 270 locations open pre-COVID-19. Twenty-seven percent of units in the rest of the world were reopened as of June 19.
In 2019, pre-COVID-19, F45 Training’s revenue was $93 million, which was a 60 percent revenue growth year over year.
F45 Training started in Australia seven years ago but expanded to the United States, and in March 2019, the actor Mark Wahlberg became a minority interest owner.
The combined company is anticipated to have an enterprise value of $845 million and be capitalized by cash from Crescent Acquisition Corp’s trust totaling more than $250 million, assuming no public shareholders of Crescent Acquisition Corp. exercise their redemption rights, along with an incremental $50 million committed by Crescent Capital Group LP pursuant to a forward purchase agreement to acquire 5 million units of Crescent Acquisition Corp., according to the announcement.
Existing F45 shareholders are expected to receive approximately 53.3 million shares in the new company and as much as $204 million in cash.Read More
As part of the $2.2 trillion CARES Act, the SBA is now offering to make six months of payments on SBA loans, including both principal and interest.
This partial payment program is part of the SBA’s flagship 7a loan program and applies to both existing SBA loans as well as new SBA loans that are closed before September 27th, 2020. SBA lenders, the public stock market, and businesses of all sizes recognize that a significant disruption has occurred in their business activities. The SBA is paying six months of payments for current SBA borrowers to relieve stress on business owners and attempting to “keep our small businesses going.” It is important to note that this is not a payment deferment plan, instead, the SBA will actually make payments of principal and interest for buyers.
If you are a potential buyer of a fitness center or studio, it’s important to consider the following:
- This is a temporary economic incident. There is no fundamental economic weakness.
- There is lots of liquidity in the finance and banking sectors, this is not a repeat of the 2008 financial crisis.
- Interest rates are at an all-time low and are unlikely to go up soon. As of mid-April, the interest rate for a 10-year SBA 7a business acquisition loan was 6%.
- Many small businesses, including fitness centers and studios, may benefit from pent up demand.
- Fitness centers and studios that were overpriced at the end of 2019 will be repriced to reflect current market conditions.
- Many fitness studios may see a decrease in wage costs as the unemployment rate increase and workers look for new employment.
- Now is not the time for inexperienced entrepreneurs to be getting into the fitness industry.
- Lenders are willing to back buyers with strong operating track records, a solid personal balance sheet, and a clear vision about how they will be able to rebuild sales and pay down debt in a post-Coronavirus economy.
- Even though the SBA will be making the payments for the first six months on newly originated loans, lenders can not take that into the credit decision. To qualify for the program, the cash flow of the fitness center or studio must be able to support the loan payment without taking into account the SBA payments.
- Lenders are willing to take into account the impact the Coronavirus has had on the business when valuing a business, but buyers must demonstrate a clear and realistic plan to get cash flow back to pre-pandemic levels.
- Certain fitness centers and studios, especially those who were able to quickly transition to a virtual model, may be especially attractive candidates for this program right now because they were not as severely impacted by the pandemic as other businesses.
If you are interested in taking advantage of this program, keep in mind that deals must be closed by September 27, 2020, to qualify. So, working backward, you may want to keep the following timeline in mind:
- Sign letter of intent – May 15th
- Complete Buyer’s Due Diligence – June 1st
- Secure Lender’s Financing Proposal – June 15th
- Lender Submits Loan to Underwriting – June 30th
- Lender Underwriting Completed – July 31th
- Purchase Agreement Completed – August 28th
- Target Closing Date – September 1st
- Fall-back Closing Date – September 15th
- Drop Dead Closing Date – September 27th
For additional information about this unique SBA loan payment program, visit the BizBuySell Financing Resource Center or contact Richard Jackim at 224-513-5142 or at firstname.lastname@example.org.Read More
Rich Jackim, a Managing Partner at Sports Club Advisors will be speaking to owners of sports and social clubs at the 2020 Sport and Social Industry Association Conference to be held in Cancun, Mexico in February.
Rich will share information about the mergers and acquisitions market for sports and social clubs. He will also discuss how to value a sports and social club and over a dozen things that can be done to enhance the value of a sports and social club. As part of his presentation, he will be sharing details of two transactions in the sports and social industry that he was involved in and the lessons that can be learned, as buyers or sellers, from those transactions.
Rich Jackim has been involved in four transactions in the sports and social industry, including two on the sell-side and two on the buy-side. He has also prepared valuations for four other sports and social clubs.
Rich is the author of the critically acclaimed book, The $10 Trillion Opportunity: Designing Successful Exit Strategies for Middle Market Business Owners, which was an Amazon Best Seller the year it was published.Read More
The value of your family-owned sports and fitness center may be one of the largest assets in your marital estate. As a result, it is essential for both spouses to know and understand the exact value of their business when contemplating divorce. Simply guessing at the value or using rules of thumb, or having someone who is not an expert in the sports and fitness industry could result in a valuation that is either way too high or way too low.
That’s where Sports Club Advisors can help. As experts in the sports, fitness and leisure industry, we offer a wide range of business valuation services to spouses contemplating divorce, including a Calculation of Value, a Broker’s Opinion of Value, a Section 59-60 Valuation, and Expert Witness Testimony.
Calculation of Valuation
A Calculation of Value is a detailed financial model that estimates the fair market value of a sports or fitness center based on its historical performance, future prospects, and market conditions. The purpose of this valuation is to provide an estimate of value that the parties can use in divorce settlement negotiations. This is the most cost-effective option, but the results from this approach are the same as in the other valuation approaches we use. We use the same financial model and the same valuation practices and principals as in the Broker’s Opinion of Value and the Section 59-60 Valuation, the only difference is we don’t write up a formal report with the results.
Broker’s Opinion of Value
A Broker’s Opinion of Value starts with a Calculation of Value and then adds a cover letter that explains the information we reviewed to prepare the valuation, the methodology we used, and our conclusions. This is often helpful if you need to present the valuation to a third party and you don’t want them to have to interpret a financial model.
Section 59-60 Valuation
A Section 59-60 Valuation is the highest standard of valuation. It gets its name from the section of the Internal Revenue Code that spells out what the IRS requires in a valuation. This standard has been adopted by most courts and is used whenever litigation is required. A Section 59-60 Valuations requires a trained, experienced appraiser to gather, analyze, and report on the financial performance and future potential of the business. This unbiased process removes subjectivity and supports a company’s true value. This is the most expensive option, so we recommend starting with a Calculation of Value or a Broker’s Opinion of Value. We can always update a Calculation of Value to a Section 59-60 Valuation if a settlement can not be reached and litigation is ultimately required.
Expert Witness Testimony
Rich Jackim and Jim Bates, the founders of Sports Club Advisors have a lot of experience serving as expert witnesses in divorce matters involving sports, fitness, and leisure-related companies. We are prepared to present our findings to a court and to explain our process and methodology in an objective, neutral manner.
Why Work With Sports Club Advisors to Value a Sports & Fitness Center?
The valuation professionals at Sports Club Advisors are committed to ensuring you receive the most accurate, efficient, and easy to understand business valuation of your sports or fitness center.
Our valuations are prepared by Rich Jackim (author of the $10 Trillion Opportunity, Designing Successful Exit Strategies for Middle Market Business Owners) and by Jim Bates (Business Valuation for Dummies) who are experts in all areas of business valuations. We are committed to provide you with an intelligent, informed analysis of your business and assure you of 100% confidentiality from start to finish.
Hidden Factors that Affect the Value of a Sports or Fitness Center
Personal Goodwill – Personal goodwill is the value of your business that is the direct result of your personal involvement in the business. The best example of this in a sport and fitness center is when the owner teaches classes or provides private personal training services and had built up a client list of personal clients. If that spouse were to leave and go to work at another fitness studio or training center, it is very likely that many or all of these clients might go with that spouse. The value of the personal “book of business” is that spouse’s personal goodwill. Since personal goodwill is not a part of the marital estate so it is important that both spouses understand whether personal goodwill is present in their business and how much of the company’s value is attributable to personal goodwill.
Term Remaining on Lease – The term remaining on a fitness center lease has a big impact on the business value. It there is not at least 3 years left on the lease a potential buyer will not have enough time to realize a return on their investment, so the value of the business goes down. The same is true if the lease can be renewed but at a much higher rent. The higher rent means lower EBITDA, which translates to a lower value.
Adjusted EBITDA vs Seller’s Discretionary Earnings – Most business brokers value sports clubs and fitness studios based on seller’s discretionary earnings or SDE. SDE is equal to all of the cash flow a company generates. EBITDA stands for Earnings Before Interest, Taxes, Depreciation and Amortization. It reflects all of the cash flow a company generates, less a market-based salary for the owner who works at the club. This is very important if one or both of the spouses work in the fitness center. If you value your fitness center based on SDE you will overvalue it because you are not taking into account the salary a new owner would need to pay to replace you.
Value of Intellectual Property – Some health clubs and sports-related businesses have built up a valuable portfolio of intellectual property that is not reflected on the balance sheet or income statement. For example, we sold an organizer of professional kickball tournaments about a year ago. They hosted 10 professional kickball tournaments around the country each year and they videotaped each game as well as the national championship. Kickball enthusiasts from around the world would then sign up and pay a monthly fee to have access to watch these games. About 50% of the value of this business came from the EBITDA it generated, but the other 50% came from the revenue potential represented by this video library and licensing platform. If your fitness center has developed a proprietary app or training program, it may represent significant value that is often overlooked.
Membership Trends – To accurately value a sports or fitness center it is essential that the valuation expert look at membership trends to understand membership attrition rates, membership dues trends, changes in membership types, and other key membership data. Clubs with high member retention rates and increasing dues trends are much more valuable than a fitness center that has 50% membership attrition and is having to lower dues to try to attract new members.
Competitive Analysis – The value of any business, including a sports and fitness center, is based on the expected future performance of that business. As a result, a valuation expert should look at who the center’s competitors currently are, and what competitors are opening up, to understand what impact, if any, the changes in the competitive environment may have on the future performance of the business.
Market Area Analysis – The value of a fitness center or sports club is directly related to the demographics of its local market area. As a result, to get an accurate valuation of your fitness club, the valuation analysis must determine what changes if any are likely to occur in your market area. Is a large new employer moving into the area? Is a developer building a large new apartment complex in the area? Any material changes to the demographics in your market area can have a big impact on the value of your fitness center.
If you own a fitness center or sports club and are contemplating a divorce, you owe it to yourself to seek competent, qualified advice from professionals who understand the sport, fitness and leisure industry.
Contact us today to learn more about the valuation process.
Selecting the right damages expert witness can make or break your case. Knowing how to pick the right expert is key to obtaining a successful outcome.
Choosing the right expert for a litigation matter goes beyond just checking that the person has the right credentials to act as an expert on financial damages. It is equally important that the expert can connect with the judge or jury, and educate them about how the available data and other information supports your client’s position.
Know What Skills Your Expert Witness Must Have
Expert witnesses are often referred from one attorney to another, however, when you need an expert with a very specific skill set, like expertise in business valuation and mergers and acquisitions issues related to the sports, fitness and leisure industry, clients and law firms do research to identify potential experts.
When picking an expert witness it is critical that you and your attorney know exactly what skills you want your expert witness to have. Richard Jackim, the Managing Partner at Sports Club Advisors, is a former mergers & acquisitions attorney and an experienced investment banker who has been involved in over 25 mergers and acquisitions in the sports, fitness and leisure industry, has performed over 90 valuations of sports & health clubs, fitness centers, and boutique fitness studios, and is familiar with franchise agreements and the world of franchising. Jackim earned his law degree with honors from Cornell University Law School and his Master of Business Administration with honors from the Kellogg Graduate School of Management at Northwestern University. Rich also developed and taught the Certified Exit Planning Advisor program offered through the Booth School of Business at the University of Chicago. A copy of his expert witness curriculum vitae is available here.
In addition to the right credentials, an effective expert witness must be able to communicate in a clear, concise, and articulate manner. He must come across as knowledgeable, accessible and self-assured, but not condescending. The ability to build rapport with the judge and jury is essential; and when both sides present a strong, technically sound case, a jury often favors the side whose expert was able to communicate the issues more clearly or convincingly. To that end, we offer clients and their attorney’s a free, one-hour initial assessment of their claims so they can determine if our approach and communication style meets their needs.
Richard Jackim is a personable and knowledgeable expert and has a unique ability to present complicated issues in a clear and concise manner that connects with judges and juries.
Credibility is Key
An expert must also be polished and unflappable in the face of tough, sometimes seemingly stupid questions from opposing counsel. An expert witness must be able to answer questions about his background and experience to withstand a Daubert challenge. It’s critical for the attorney to have an upfront conversation with the expert to ensure they are of good character; have worked for both plaintiff and defendant; learned of any positions they may have taken that are adverse to the position taken in this case, whether through testimony or through publications of an article; and whether they have been Dauberted.
Richard Jackim’s top-tier academic credentials, plus his 30 years of business experience including practicing mergers & acquisitions law, and leadership positions at several leading investment banking firms, provides him with unique qualifications as an expert witness. His opinions are based on market realities and actual transactions, not just financial theories. As a result, he can speak to industry best practices and what is “market”.
An Expert’s Experience = Your Advantage
It’s also important that you select an expert witness who has experience testifying in a courtroom or providing deposition testimony. This experience enables them to have a clear understanding of the moving parts of a case, gives them an advantage by being able to understand how litigation and depositions work, allows them to anticipate the kinds of questions opposing counsel might ask, and helps you and your attorney understand the key weaknesses in the opposing expert’s presentation.
Richard Jackim has consulted on over thirty-two different litigation matters, testified in six depositions, and provided expert witness testimony in two trials. His experience as an industry expert and as an expert witness helped the parties settle thirty matters without the need to go to trial. On the two matters that did go to trial, Jackim’s clients won both matters on the merits, with the judge stating in one case that Jackim’s testimony was clear and convincing and could not be refuted by the opposing expert witness.
Areas of Expertise for Sports Businesses & Health and Fitness Centers
- Business Valuations
- Financial Damages (lost revenues & profits)
- Valuation of Membership Lists
- Valuation of Personal Goodwill
- Earnout Disputes
- Lender or Creditor Disputes
- Shareholder Disputes
- Buyer & Seller Disputes
Engage An Expert Witness as Early as Possible
For these reasons, we encourage clients and their attorneys to contact us as early as possible. Early collaboration provides us with an opportunity to help you and your attorney to discuss strategy. Ideally, we would be engaged early enough to assist in formulating requests for discovery. As a well-versed damages expert, Jackim knows what information is needed to ensure a thorough and supportable analysis. In addition, engaging us early in the process allows time to think through the issues and help you and your attorney develop the most cost-effective strategy to present your case.
In the event we find we cannot support your position based on the information provided, knowing this early on can give you time to either revise your strategy or find a different expert. Remember, unlike attorneys who are advocates for their clients, your expert witness should be a neutral, third party whose opinion is objective and unbiased. Jackim has built an impeccable reputation by providing clients with honest, objective, advice based on the available facts and his years of industry experience.
As an experienced damages expert, Jackim is familiar with recent case law in the subject area, as well as the best health club and fitness center business practices and mergers and acquisitions norms. He understands his role and can be the deciding factor in your case if you choose to use his knowledge, experience, and credentials. For a free initial consultation, please contact Richard Jackim at email@example.com or at 224-513-5142.Read More