borrowers, the story was uneven. More banks became conservative, offered lower percentages of appraised values and were more rigorous in the pro- cessing phase. The role of the Small Business Administration (SBA) has been a challenge for many. The only good news for existing club operators was that those banks were very diffi- cult in their lending criteria for start- ups and those without established track records. The theme for over 16 years from
the financial community has been that the club industry is one of the most fragmented that they have ever studied. It is ripe for consolidation. Beginning in late 2011 and for all of 2012, several major club companies were sold to other club companies. It was the first time that whole club companies had disappeared. These in- cluded Lifestyle Family Fitness, Urban Active, Oregon Athletic Clubs and the Sports Club Company. In other cases, large chunks of club companies were sold, including Bally Total Fitness, Spectrum Clubs, World Health Clubs (Canada) and others. But at the end of the day, fewer than 1% of all of the U.S. clubs were consolidated. There were no IPOs (initial public
offerings), and none are likely in the U.S. in the near term. There are early plans that Virgin Active may explore an IPO in South Africa. No U.S. club company bought a
major set of clubs internationally, al- though Equinox Fitness did open its first European club. Likewise, there were no internationally-based clubs that opened in the U.S. There is continual movement from
the medium-size club companies who keep adding one or two clubs a year in their same geographical areas. Many of the franchise companies (e.g., 24/7 all-access clubs, high volume/low- priced clubs, boxing clubs, barre class clubs and small-group training clubs) have witnessed continual growth. The exciting news is that the club
industry attracted new private eq- uity investment, and clubs like Planet Fitness, LA Boxing, Curves International and In-Shape benefitted directly.
Other related news Once again, there was less growth in the non-profit sector with more
difficulty raising tax dollars and find- ing private donations. Few parks and recreation facilities, YMCAs,
JCCs,
hospital wellness centres and mili- tary base recreation centres were built, compared to the past. The major ex- ception continues to be the university- based fitness centres which are grow- ing rapidly and typically cost $30-$60 million. The well-discussed U.S. healthcare
legislation and initiatives have not yet had any material effect. But 2013 is a year for planning. Clubs are worried about increases in
their own employee healthcare costs. And some new concepts are being cre- ated by clubs to offer programs (not memberships) to those who would not join a club and often have health is- sues. This has led to insurance compa- ny reimbursement and employer-un- derwritten program payments. It is still early to see the impact of the changes. At the same time, there has been no FDA-approved diet pill to theoretically serve as the magic bullet or any more efficacy in diet centre offerings.
Big takeaways from the IHRSA Financial Panel There were lots of insights provid-
ed at this year’s IHRSA Financial Panel with presenters from North Castle Partners, Pulse Equity, LNK Partners and TEKA Capital (from South America). All noted the continued seg- mentation of the club industry. The franchise side continues to expand. North Castle emphasized the value of the Curves brand, its plans to add an online weight loss component and the ultimate value of combining exercise with a diet program. Pulse Equity em- phasized the bigger trend of wellness (where fitness is a component), the val- ue of content and information and the future integration with healthcare. LNK Partners, who invested in
Beachbody, sees the greater emergence of both home fitness and commercial clubs. They cited the retailing trends
of high-end offerings (e.g., Whole Foods, Nordstrom’s, Equinox, Apple and Michael Kors) and the value seg- ment of others (e.g., Dollar General, Five Below, Grocery Outlet and Planet Fitness). They emphasized the greater need for differentiation and the prob- lem with being in the middle. They highlighted the need for a mission- driven company with a strong corpo- rate culture. TEKA Capital, which owns the larg-
est club company in South America with 95 clubs, focused on improving communities’ quality of life through physical activity. It understood the im- portance of identifying complemen- tary businesses, under the club brand. The challenges cited included the need for more professionalism in the in- dustry, the lack of fitness educational programs, the highly fragmented club industry in each country, and the low number of club members. There still seems to be lots of capi-
tal in private equity’s hands that is still studying the club industry. There are some new business models evolving. Some private equity firms are waiting for more exits to help validate invest- ments. Further merger and acquisition activity is projected over the next 12- 18 months.
Conclusions Most financial experts and club
leaders are optimistic regarding 2013. Some clubs need to be reminded of the importance of expense manage- ment and costs creeping upwards as revenues increase. The importance of growing ancillary revenue is para- mount. Few are expecting major net membership growth. The debt variable is being studied by all. Capital expen- diture levels are returning to their for- mer levels. New builds will continue to be the main vehicle for club develop- ment, although more are studying club acquisitions than previously. The tide is rising again. FBC
Rick Caro is president of Management Vision, Inc., a club consult- ing company with expertise in helping clubs with club financials, club valuations, market feasibility studies, expert witness testimony, member surveys and club sales/purchases. Management Vision, Inc. can be reached at 800-778-4411 or
mgmtvision@gmail.com.
May/June 2013 Fitness Business Canada 27
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