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Equity Recapitalization for Private, Member-Owned Golf Clubs

Private golf clubs have felt the pinch from on-going economic turmoil and uncertainty. Over the last 15 years membership rosters have shrunk considerably. The majority of private clubs has fewer members today than a decade ago. Changing demographics, combined with fierce competition and changing lifestyles have made attracting and retaining members increasingly difficult.

Of the 14,000 golf facilities in the US, our research suggests that approximately 4,500 are private clubs. Of these, approximately 60% or 2,700 are “equity” clubs that are owned and operated by the club’s members themselves. For a variety of reasons, the number of private member-owned clubs has declined by over 20% since 1990.

For certain clubs serving the very affluent, i.e., those with initiation fees of $100,000+ and annual dues of $15,000 or more, being a member owned club will always be the preferred structure. This ownership structure allows them to be highly selective when admitting new members and they will always have enough highly affluent members who can afford to pay for this type of exclusivity.

However, for the majority of clubs, i.e., those with initiation fees of less than $100,000 and annual dues below $15,000, the member-owned business model may not be a good fit. Members at these clubs often report that it is difficult to actually sell their membership so for these members their “equity” in the club has little real value.

Why is this the case?  These clubs are usually competing with several similar clubs in the same geographic market that all have comparable features and amenities.  This means families interested in joining a club have several options to choose from.  For these clubs to succeed they need to actively compete for new members based on service, amenities, and price. In short, they need to be run like any other premier fitness or hospitality business – they need to be run like a five star hotels or restaurant.  This typically means the best ownership structure is for the club to be owned and operated by a professional manager who has their own capital at risk.  This makes them focused on delivering an outstanding membership experience.

The process of transitioning a member-owned equity club to a professionally owned and managed club is called an recapitalization.  It’s not complicated, has been done hundreds of times, and it usually provides significant benefits to the club’s members.

What makes a club a good candidate for a recapitalization?

Consider the following questions about the member-owned club:

·         Is membership below its cap with no wait list to join the club?

·         Does the club have a lot of debt with little to no long-term capital reserves on hand?

·         Are capital improvements being deferred because of lack of capital?

·         Are members getting regular assessments to fund capital improvements or operating losses?

·         Are members complaining because the club isn’t offering modern, well maintained facilities, or amenities?

·         Do members have difficulty selling their memberships at their original cost?

·         Does the club have gross revenue of at least $4 million?

If a club responded “yes” to most of these questions, the club’s board should consider whether an equity recapitalization could be an effective solution to the challenges facing the club.  In most cases it can be.

The Benefits of Recapitalization.

Some of the benefits of recapitalization include:

·         The club becomes debt-free with fully funded capital improvements.

·         The club is professional managed, with input from a member advisory board.

·         Member dues and privileges remain the same.

·         Members are guaranteed there will be no more assessments—ever.

·         Members are not burdened with management or oversight, they can simply enjoy being members of their club

·         Members often receive reciprocal memberships at other clubs owned and operated by the management company.

While an equity recapitalization is not the only solution to a club’s problems, it is a viable, well-tested solution that can lead to sustainability with tremendous benefits to a club’s members.

How does a recapitalization work?

The basic elements of an equity recapitalization are as follows:

·         The new owner (typically the management company) forms a new corporate entity.

·         The existing club (often a 501(c)3 non-profit entity) transfers the real estate assets to the new corporate entity.

·         Any debt the club owes is paid off by the management company so the club is debt-free and unburdened by debt service payments.

·         The club’s members sign new membership documents with the same privileges, dues and virtually identical by-laws. Membership dues are typically frozen for a period of time, usually several years.

·         Covenants are put in place to ensure that the club remains private and there will be no assessments—ever.

·         All needed capital improvements are funded up front by the management company. This is in lieu of paying the members for their equity—in effect, all of the member’s equity is reinvested into the club allowing the club to upgrade its amenities and significantly improving the member experience.

·         A member advisory board is elected by the members.  This board advises and guides the management company on capital improvements, service issues and long-term planning.

·         Members receive reciprocal club privileges at other clubs owned and operated by the management company.

Once the club’s board decides to move forward, the management company prepares documents and completes due diligence; then, the membership votes to approve the equity recapitalization. The whole process can be completed in two to three months with little to no disruption to the members or the operations of the club.  To learn more download our white paper on the value of member-equity recaps for private country clubs.

If you would like to explore whether an equity recapitalization is right for your club Contact Us or give us a call at (888) 270-0028

6 Tips on How to Buy a Sports/Fitness Club or Business

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.

Conclusion

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.

If you are interested in Our Services or would just like to network, please feel free to Contact Us.

Sports Club Advisors Develops Fitness Industry Public Company Index

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.

Top Reasons Why Sports and Fitness Clubs Don’t Sell

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.

1. Growing (or at least stable) revenues and earnings
2. Growing industry or market segment overall
3. Positive demographic trends
4. Stable club membership or customer base
5. Diversified revenue streams
6. Low customer & vendor concentration
7. Experienced and committed management team willing to stay with the club or business after the sale
8. Well maintained assets and facilities
9. Margins that are above (or at least equal to) industry averages
10. 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.

Sports Club Advisors to Attend Club Industry Show

Sports Club Advisors will be meeting with clients, buyers and prospects at the CLUB INDUSTRY SHOW.  If you’d like to schedule an appointment, please Contact Us

 OCTOBER 12-14, 2016 CHICAGO, IL

From Professional Sports to Private Equity: A Few Athletes Who Made the Cut

Ever wonder what professional athletes do when it’s time to retire before they’re 40?  With the competitive drive to win, combined with lots of free time and, usually a very healthy balance sheet, for many the answer is to pursue a second career as an entrepreneur or in private equity.

In this post we take a look at a few professional athletes who have retired and made the cut to get into the exclusive world of private equity.  Among those who have made the move are one of the greatest goalies in NHL history, a two-time NFL MVP, and a member of the 1992 Dream Team to name a few.

Gary Fencik—Partner, Head of Business Development at Adams Street Partners

After a rewarding career as a safety for the Chicago Bears during the ’70s and ’80s, Gary Fencik was a member of one of the most powerful defenses in NFL history. Now he’s in charge of business development for a private equity firm with more than $27 billion in assets under management .

Steve Young—Co-Founder, Managing Director at HGGC

As an NFL quarterback, Steve Young was a two-time MVP who won three Super Bowls with the San Francisco 49ers. After retiring in 2000, he earned a law degree, tried politics and helped launch a successful private equity firm. HGGC has more than $2.4 billion in assets under management with a portfolio that includes tech companies like Selligent and Serena.

Kerry Kittles—Associate at Ledgemont Capital Group

The former NBA wing took a bit of a different path to Wall Street. Rather than founding his own office, Kittles went back to get his MBA at Villanova (the same school where he played college basketball) before catching on as an associate at Ledgemont. Kittles is also an advisor to Fantex, a platform that lets users trade stock in the brands of professional athletes.

David Robinson—Co-Founder at Admiral Capital Group

A 7-foot-1 NBA champion, Robinson retired from professional basketball and jumped into the private equity field by co-founding Admiral Capital Group, an investment group focused on real estate but with investments in companies like online ticket marketplace ScoreBig and sporting goods retailer Academy Sports + Outdoors.

Detlef Schrempf—Partner at Coldstream Capital Management

A native of Germany, Schrempf spent much of his basketball career in the Pacific Northwest and now works for Bellevue, WA-based Coldstream Capital. After joining the firm in 2007, the former three-time NBA All-Star has worked primarily in business development; sourcing new deals for his PE firm.

Muhsin Muhammad—Managing Director at Axum Capital Partners

Instead of catching passes, Muhammad, a former NFL wide receiver, is now sourcing deals, making investments and helping manage a portfolio companies at Axum, a private equity group based in North Carolina. During his pro football career, Muhammad was probably best known for his 85-yard catch in Super Bowl XXXVIII which is still the longest touchdown in Super Bowl history.

Mike Richter—Founder, Managing Partner at Healthy Planet Partners

Many consider Mike Richter, a member of the U.S. Hockey Hall of Fame, to be one of the best goalies in history.  Each year the NCAA awards the best goalie in men’s hockey the Mike Richter Award. Mike has been busy in retirement, earning a degree from Yale, getting involved in politics, and starting his own environmentally focused private equity group called Environmental Capital Partners.

Zoltan Mesko—Former Intern at Graham Partners

Zoltan Mesko, the Romanian native and former New England Patriots kicker has an interesting story. During the 2011 NFL lockout, the University of Michigan graduate worked for the private equity firm Graham Partners. Mesko took what he learned there and now that his playing career is over, is working at IBM in its Business Intelligence & Predictive Analytics division.

The Bay Club Company Acquires Manhattan Country Club for $73 million

The Bay Club Company Acquires Manhattan Country Club as part of its expansion program.

The Grand Opening of the New and Improved Midtown Athletic Club in Chicago, Illinois

Chicago will once again witness the unveiling of an innovative sports resort this summer. Midtown Athletic Club is gearing up for the grand opening of its new expansion, one that’s completely different to anything people have seen in the state – or anywhere else in America. This July, the six-level fitness center on the border of Lincoln Park and Bucktown will launch a boutique hotel within the facility, which highlights its $75 million transformation into a luxury sports resort.

Usually gyms open inside hotels, not the other way around. Thanks to Evanston-based firm, DMAC Architecture, Midtown Athletic Club expanded from 150,000 square feet to 575,000 square feet. It also helps that this famous tennis club’s features are redesigned by no less than V Starr Interiors, a company owned and operated by future hall of fame inductee, Venus Williams.

V Starr Interiors is drawing up plans for one of Midtown Athletic Club’s four new suites, as well as multiple Olympic-size swimming pools and outdoor decks. One of these open air facilities can and will be transformed into an ice hockey rink during the winter. They also plan to redecorate its tennis lounge – a sport that Venus Williams and Midtown Athletic excel at.

These improvements only add to the legacy of Midtown Athletic Club in Chicago and in the tennis industry overall. Midtown has always been a leader in the world of tennis clubs, with many of its locations integrating innovative technologies into training and playing. All 16 indoor tennis courts at Midtown Athletic Club offer a service called PlaySight. According to tennis site Play Your Court who cover the Chicago area, this is a camera and kiosk system that records each game, providing accurate line-calling, fast live-streaming, and on-the-spot multi-angle video replays. Furthermore, guests will feel like bona fide pros, considering that Midtown offers the most cutting-edge technology to its members and guests to utilize.

Recently, Midtown Athletic Club gave a select few a taste of some of its new amenities. In addition to a boutique hotel, the sports facility expanded its fitness program, giving members a bevy of options available all over the club’s first three levels. There will be a studio for strength and conditioning workouts, a 40-foot soccer pitch, and an NBA-level basketball court. It will also have a boxing gym and a Cycle Journey studio, as well as two golf simulators and three squash courts.

Part of Midtown Athletic Club’s expansion focuses on the development of young athletes. They’ll soon provide specialized fitness options for kids who want to learn the basics of whatever sport they choose. Best of all, the facility plans to have Venus Williams curate their signature tennis program, providing real life inspiration to novice players.

All in all, Midtown Athletic Club truly is a one-of-a-kind sports facility. It covers everything from sports training, to fitness and conditioning, to relaxation and leisure.

Midtown Athletic Club will open on July 15, 2017.

Courtplay Athletics Secures Management Contract for Burke Racquet & Swim Club

Sports Club Advisors advised Courtplay Athletics, LLC, a Northern Virginia based, full-service tennis management firm, on its acquisition of the tennis management contract at Burke Racquet & Swim Club (“BRSC”), Burke, VA.

Burke Racquet & Swim Club is a 56,000 square foot, all indoor fitness center opened in March, 1985 and offers a full range of group fitness classes, water aerobics, tennis and swim team activities plus sport rock climbing.  It is one of the most diversified fitness centers in the metropolitan Washington DC area.

Founded by Michael Harper Jr. and Farshad Garakani (nationally renowned tennis professionals), Courtplay Athletics brings comprehensive pathways, programming and services to its students and members.

Sports Club Advisors worked closely with Courtplay Athletics in developing the financial models, strategy and negotiating the deal.  Michael Harper spoke about his experience working with Jim Bates and Rich Jackim, the founding partners of Sports Club Advisors:

Michael Harper, CEO, Courtplay Athletics

“Working with Sports Club Advisors has been amazing. Rich and Jim definitely understand the industry in a way that most M&A specialists don’t. They truly see both sides of the deal and their guidance on this project was invaluable. As an entrepreneur, being responsible for the day to day operation of my business, it can be hard to always see all the angles, especially as we scale. It’s safe to say that without Jim and Rich this deal would not have worked out the way that it did. We look forward to continuing to work with them as move forward with the development of our brand. ”

Sports Club Advisors is the premier advisory firm to the sports and fitness industry.  SCA’s services include:  sell-side mergers & acquisitions, buy-side mergers & acquisitions, valuation, and strategic management consulting.

For more information contact Jim Bates at  mobile:  847.404.4566 or jbates@sportsclubadvisors.net