How do you maximize the value of your fitness club or business? What’s the difference between a club worth $150,000 and $1,500,000? Health, fitness and sports clubs and related fitness businesses typically sell for between 3 times and 6 times their cash flow. That’s a big range, but where you fall in that range is up to you.
In order to maximize the value of your club or business, remember that there are three basic categories of factors affect the value of a fitness club or business: return on investment, risk profile, and growth prospects.
Return on Investment
Buyers look to the cash flow of your business or your Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) to see what kind of pay back they will get on their investment. As a result, if a buyer offers you 4 times EBITDA for your club, they are basically saying that it will take them 4 years before they will recouped the purchase price and begin seeing a return on that investment. As a result, doing whatever you can to improve your cash flow or profitability will have a multiplier effect when you sell your club or business.
The risk profile of your club club or business is largely subjective and based on the buyer’s impressions. Their impression of risk directly affects how long they are willing to wait before they see a return on their investment. So, if your club has a higher than average risk profile, buyers may only be willing to pay you 3 times EBITDA, because they are concerned about the long-term prospects of your business.
Here is a list of some of the factors that buyers look at to determine the risk of a particular business:
- Are the long-term and short-term trends in revenues and earnings positive or negative?
- Is total membership stable?
- Are financial statements complete and accurate ?
- Is operating data presented in a clear and concise way?
- Does the business have an experienced management team willing to stay on after the sale?
- Are margins at least equal to industry averages?
Buyers are basically buying the future performance of your fitness club or business. As a result, to maximize their return on investment they want it to be bigger and more valuable when they decide to sell it years in the future. As a result, buyers will try to project how they could grow your business once they own it. Help them see the growth possibilities by understanding the following:
- What are the prospects for increasing overall membership?
- How successful would we be in introducing new programs?
- What other sources of revenue could this club or business generate?
- Could we grow by acquiring other clubs in the area?
- How much would it cost to expand or enhance the club’s current facilities?
Small changes you make today can have a huge impact when you decide to sell. Contact Us if you would like to learn more about how you can maximize the value of your sports club or business.Read More
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
Sports Club Advisors has developed an index of publicly traded health & fitness companies to establish financial benchmarks and valuation metrics for the health, sports & fitness industry. We have organized the companies in the index based on the sub-industries within this category.
Fitness Clubs: Many of the well known fitness clubs such as Golds Gym are privately owned, however Planet Fitness completed an IPO in August 2015.
Planet Fitness, Inc. (PLNT)
Town Sports International Holdings, Inc. (CLUB) (owns and operates fitness clubs in the Northeast and Mid-Atlantic regions, including the Boston Sports Clubs, New York Sports Clubs, Philadelphia Sports Clubs and Washington Sports Clubs)
Fitness Equipment Manufacturers: Included in this section are companies that manufacture and sell fitness equipment.
Brunswick Corporation (BC)
Nautilus Inc. (The) (NLS)
Gaiam Inc. (GAIA) (manufactures and sells Yoga products (mats, bags, etc.), fitness products, balance balls; workout, yoga & wellness videos)
Wearable Technology: Wearable technology is the rage right now and promises to transform the way consumers and fitness clubs think about fitness. As a result, there are an increasing number of companies producing health and fitness trackers and health monitors including Fitbit (FIT) that completed IPOs in 2015.
BioTelemetry Inc. (BEAT)
DexCom, Inc. (DXCM)
Fitbit Inc. (FIT)
Weight Loss: Anyone who has ever tried to loose weight is likely to recognize the public companies in this sub-sector.
Medifast Inc. (MED)
NutriSystem Inc. (NTRI)
Weight Watchers International Inc. (WTW)
Health Food and Nutrition Stores: These companies operate health oriented retail stores. Two examples include:
GNC Holdings, Inc. (GNC)
Vitamin Shoppe, Inc. (VSI)
Nutritional Supplements: These companies develop and manufacture nutritional supplements. Examples of these companies include:
Herbalife Ltd. (HLF)
Nu Skin Enterprises, Inc. (NUS)
USANA Health Sciences, Inc. (USNA)
Sports Club Advisors provides business valuations for all types of sports, fitness and leisure businesses. Our valuations have been used in strategic planning, divorce settlements, shareholder disputes, and purchase price allocations. The founders of our firm have written two books on business valuation. Contact Us if you would like to learn more about our valuation services for fitness clubs and health and leisure industry.
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.
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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.
According to a recent study released by Dr. Lisa Neirotti, a professor at George Washington University, travel sports or “sports tourism” is an $8-billion industry that accounts for 14% of all tourism. As a parent with two children who competed at the national level in high school, a good share of our time and household income was spent on traveling to tournaments around the country. But sports tourism doesn’t stop with youth sports. The adult travel sports segment is growing too as seen by record numbers at regional marathons and tennis tournaments around the country with many adults traveling long distances to compete.
Sports Club Advisors believes there are 10 trends that will affect the future of the travel sports industry in 2017 and beyond:
#1 – Facility Development. Designing and building a “premium” facility is becoming increasingly important to make the experience memorable and enjoyable for all participants, from athletes to spectators. The recent development of premier indoor and outdoor soccer facilities around the country is evidence of this.
#2 – Ownership Structures. In the past local communities, sports commissions, or counties have financed, owned and operated facilities. However, increasingly, we are seeing that well-run privately operated sports facilities create better overall experiences and are more successful. We expect more public-private partnerships to develop over time.
#3 – Social Media. Social media is not just for marketing events. It has become a tool to provide real time updates and highlights during events, changes in schedules and VIP sightings. Due to flexibility, convenience and cost, apps have replaced the printed flier or guide.
#4 – Volunteers. Many events are run by a combination of paid employees and volunteers. A pending lawsuit filed by a volunteer alleges she should have been paid for her work at a sporting event. The outcome of this case could have massive implications on the way events are organized and staffed, not to mention the economics of sporting events.
#5 – Partnerships. We are increasing seeing groups partner to create a world class sporting venue. Public private partnerships have been around for a long time, but we are now seeing partnerships between owners and concessionaires, service providers, sponsors, sports equipment manufacturers, etc. We expect this trend to continue.
#6 – Sponsors. In the long-term, sponsor involvement is more important than a sponsor’s money. It is arguably more valuable to have the Chicago Cub’s name associated with a baseball tournament or camp than to have their financial support. Through well planned involvement, the sponsor will get more out of the experience and so will you. Get to know your sponsors and let them get to know you before you ask for money.
#7 – Bid Fees. Host cities are less willing to pay bid fees, and are instead looking for a financial partnership with event organizers. This shared risk-reward model is becoming more common every day. In addition to diversifying risk, many host cities want a share in the financial results (just the upside) of the events they host.
#8 – Housing. Securing adequate hotel space for events and negotiating rebates and commissions with hotel operators is likely to become more of a challenge. At least one major hotel brand is exploring capping commission and rebate programs. The challenge of protecting rate integrity and of tracking room blocks and rebates (especially in smaller communities) may force the industry to revisit how housing is secured for travel sports events.
#9 – Helping Others. The most successful events have a charitable side to them that make participants feel good about competing. From charity runs to playground clean-ups these events do well by helping others. The question is, “How can we engage our target market and create a positive impact on our community.”
#10 – Creating Experiences. The NCAA Women’s Final Four slogan, “It’s More Than Three Games” says it all. Athletes, young or adult, and spectators at events want their trips to be an experience for the entire family. That means event organizers need to plan supplemental activities for family members to do (apart from the sporting event or competition) that will create memories. This is equally true for world-class running events to youth travel gymnastics tournaments. The more you invest in creating a memorable experience for all participants, the more successful your event and facility will be.
About the Author: Rich Jackim is a licensed attorney, an experienced investment banker, a sports industry entrepreneur and the managing partner of Sports Club Advisors, Inc. Sports Club Advisors is a boutique mergers and acquisitions firm that provides financial advisory services to clients in the sports, fitness and leisure industry. Rich may be reached at firstname.lastname@example.org.Read More
When it’s time to grow your fitness business, how you grow is important. There are two ways to grow your business: organic growth and growth through acquisitions.
Organic growth basically means doing what you currently do, just doing more of it or doing it better. That means increasing the amount of the products or services you sell. You can do this by fine tuning your marketing and operations, or entering new marketing by introducing new products and services or opening new locations. This is how most businesses grow. It takes time and effort, but it is tried and true. The only risks are those that are inherent in operating your business.
Growth through acquisitions, on the other hand, is buying companies and consolidating them into your own. It can be a good way to rapidly expand your business. It sounds easy, but a famous study at Harvard Business School showed that almost 50% of acquisitions do not live up to the buyer’s original expectations. So what determines a good acquisition from a bad one? How to you decide if it makes more sense to buy another club or business, or just start one from scratch? Should you adopt an acquisition strategy just to get bigger, or are there other strategic objectives to consider?
These questions lie at the very heart of every CEO’s decision on how to grow his or her business in a way that creates value for the company’s stakeholders – its owners, its employees, and its customers or members. While buying companies may sound simple, ensuring that you buy the right company is still as much art as it is science. When you acquire and merge two companies together, the result must be greater than the sum of the parts or the acquisition does not make sense.
A study published in the Harvard Business Review years ago concluded that successful acquisitions must do at least one, but preferably two things.
Eliminate Redundant Expenses
The first factor is an elimination of redundant expenses. What this usually means is that the acquisition or merger allowed the combined company to reduce costs. The largest of these cost savings are usually in the form of reduced payroll or reduced headcount. When two companies are combined, they typically don’t need as many people doing the same jobs. The second biggest expense reduction comes from the fact that the combined companies don’t need the same number of offices, warehouses, factories or retail locations. So rule number one is be sure the proposed acquisition will reduce your overall cost structure and enhance your margins.
Gain New Know-How
The second factor is a transfer of knowledge. Each company has its own proprietary knowledge base or skill set. Some companies have a competitive advantage over other businesses in their industry because they have developed proprietary products, a unique service models, an excellent training program, superior marketing or purchasing program, or some other skill or knowledge. When a company acquires another company, this knowledge or skill is an “off balance sheet asset” that is a big part of the value of the acquisition. The transfer and integration of these skills, requires a lot of work and careful thought, but is a major factor in whether or not the acquisition is successful. So rule number two is to be sure the acquisition you are considering brings some unique knowledge or competitive advantage to your business.
In the world of mergers and acquisitions, these factors are referred to as “synergies.” In our experience, growing for growth’s sake alone does not make sense. Growing to capture synergies is the key to growing through acquisitions. That said, one of the biggest mistakes buyers make is to underestimate how long it will take to see the benefits of these synergies.
Consider Impact of Culture
The largest obstacle in the realization of these benefits comes from cultural differences between the two companies. The stronger a company’s culture, the harder it is to assimilate a new one. In our experience, when culture and strategy clash, culture always wins, so buyers need to invest a lot of time and effort to understand their culture and the culture of the company they are thinking of acquiring to see if the cultures are compatible. Understanding and quantifying the synergies of a possible acquisition and helping to determine if the cultures are a fit are the keys to making a successful acquisition.
So, in short, when deciding whether to pursue an acquisition growth strategy, be cautious and get good advice from knowledgeable experts. Acquiring another company can be a transformative event for your company when done well and with proper thought. However, without a careful and objective process in place, it can be a disaster.
Rich Jackim is a partner at Sports Club Advisors, Inc., a leading mergers and acquisitions firm that serves the sports, fitness and leisure industry.Read More
Below is an article I wrote in 2006 to promote my book “The $10 Trillion Opportunity.” I’m humbled to say that book about exit planning created a paradigm shift in the world of mergers & acquisitions and business brokerage and improved the way hundreds of entrepreneurs approached selling their privately owned businesses. The following article provides a short, high level overview of the concept of exiting planning. Despite the fact that the article is now over 10 years old now, it’s still worth sharing.
An Introduction to Exit Planning
An exit plan is a comprehensive road map to successfully exit a privately held business. It asks and answers all of the business, personal, financial, legal, and tax questions involved in selling a privately owned business. Its purpose is to maximize the value of the business at the time of the exit, minimize the amount of taxes paid, and ensure that the business owner is able to accomplish all their personal and financial goals in the process.
Despite the tremendous value of exit planning, most business owners do not have an exit plan. In fact, research indicates that only 28 percent of private business owners have done any exit planning which means that more than 70 percent of business owners have no exit plan at all. This may be one reason why only 30 percent of family-owned businesses survive through the second generation.
The bottom line is that too few business owners proactively plan for the inevitable exit process. They typically are too consumed with working “in” the business and they fail to work “on” the business. Further, they keep procrastinating and putting off the important planning piece. To reach their personal and business goals, every business owner should begin with the end in mind and have a strategic exit plan regardless of their age or the stage in the life cycle of the company.
Private equity groups will not buy or invest in a successful middle-market company without developing a detailed exit plan for themselves prior to investing. One of the goals of the exit plan is to position the company so it can maximize value at the time of sale.
Since many value enhancement projects take time to implement and show results, business owners should begin the exit planning process at least 3-5 years before they want to exit the business. This helps ensure a successful exit through a continued focus on the value factors and value drivers in the business.
Business owners need to assess the various exit options at their disposal including:
- Transfer to family
- Sell to other shareholders
- Sell to management (MBO, LBO)
- Sell to an ESOP (employee-owned)
- Sell to a third party (strategic buyers, financial buyers; private equity)
- Refinance or recapitalize the business (raise capital, take some chips off table)
- Going public (IPO, DPO)
Because each of these exit options has different pros and cons, and implications a well planned, realistic strategy to exit the business at a desired level of valuation or pass it on to the next generation of the family is indispensable to all emerging growth companies.
To understand your options and ensure that you accomplish all of your personal, business and financial goals, contact Rich or Jim at Sports Club Advisors at (224) 513-5142.
Rich Jackim is the author of the $10 Trillion Opportunity and the co-founder of the Exit Planning Institute. Rich is a partner at Sports Club Advisors, an experienced M&A advisor, a licensed attorney, a sports industry entrepreneur.
OCTOBER 12-14, 2016 CHICAGO, ILRead More
Several private-equity firms have been aggressively investing in boutique fitness chains, including yoga, spin and barre studio fitness centers. These moves illustrate the growing popularity to investors and consumers alike, of workout classes that aren’t tethered to traditional gyms and monthly membership fees.
In 2015 Boston-based Great Hill Partners purchased YogaWorks, which operates 29 yoga studios in California and New York, from Highland Capital Partners. Great Hill paid approximately $45 million for the company, according to people familiar with the deal.
Also last year, CorePower Yoga received an investment from private-equity firm Catterton Partners, which enabled them to add about new 20 locations. CorePower Yoga now operates about 100 yoga studios around the U.S.
“Right now we are seeing a shift away from traditional gyms towards more specialized programs, as consumers want their workout routines to be more fun and engaging,” said Sports Club Advisors partner Rich Jackim, who added that his firm’s research indicates that yoga and boutique fitness class attendance is up 12% over a year ago. Sports Club Advisors is an M&A firm that puts together deals in the health, fitness and sports club sector.
Jackim said buyers like boutique fitness clubs that offer unique programming and have strong brand recognition. For example, YogaWorks, in addition to its studios, also runs a yoga school that has trained thousands of yoga instructors worldwide, according to its website.
Private-equity firms often buy companies to serve as “platforms”, which they then grow aggressively by making a series of add-on acquisitions over 4-6 years, before selling or taking the company public. With Great Hill’s acquisition of YogaWorks, Jackim said he expects to see a consolidation in the yoga sector over the next five to six years. Right now, the yoga sector is highly fragmented with between 7,000 and 9,000 yoga studios in North America, most of which are independently owned and operated.
Investors are also racing to close deals in other areas of the fitness sector in addition to yoga. In April last year, private-equity firm Catterton Partners, the firm that invested in CorePower Yoga also invested in the indoor cycling studio, FlyWheel. Flywheel’s main rival is SoulCycle, whose parent, Equinox Fitness, is owned by a private-equity group called Leonard Green & Partners.
Flywheel also offers a ballet-inspired class known as FlyBarre that’s similar to one offered by Pure Barre, which is backed by South Carolina-based buyout firm WJ Partners.
According to Sports Club Advisors the number of new locations that boutique fitness chains have opened has increased by 450% between 2010 and 2015. That makes boutique fitness chains the fastest-growing segment of the $22-billion-a-year U.S. health-club industry, according to the mergers and acquisitions firm.
“We’re seeing a good response from the private-equity community when successful boutique fitness clubs are finding a financial partner to provide growth capital and accelerate their expansion plans,” said Jackim. “There is significant capital available for proven fitness industry entrepreneurs, the challenge is finding the right partner and negotiating the right terms.”
Sports Club Advisors is a mergers and acquisitions firm that advises clients in the sports, fitness and leisure industry.Read More