loan-to-value ratios. This has been an ideal time to access debt for club op- erators, franchisors, and even franchi- sees and private equity firms.


Active club transaction market 2014 has seen a substantial increase


in the number and types of club deals. There is always talk of the movement for serious club consolidation. But, there has never been a year where even one percent of the total com- mercial clubs were sold to other clubs. Often, one private equity firm buys out another. In one case in 2013, one club company (Club Corp.) went pub- lic. The past year saw the Millennium Clubs (d/b/a Sports Club/LA), Sport & Health, The RUSH, Atlanta Fitness and Bally Total Fitness (30 clubs) were all sold to other club companies. After this Bally sale, it now may mark the shutting down of what was once the largest club company going back to the 1960s and 1970s. This has been a heavy period of


club transactions, which has not been witnessed previously. Even local clubs are finding buyers, although the pro- cess can be difficult. Many privately owned clubs are still hoping for values which may have been possible in 2007 but not since then. Independents still struggle to understand their practical valuation levels today and then do not know how to execute a proper sales process. This leads to favour third-par- ty sales from this segment. There have been no international


companies investing in the club indus- try in the U.S. and only Equinox and LA Fitness are venturing into Canada. Equinox has only one unit in London. Several franchisors have been recently growing their market share in other countries. The market continues to be recep-


tive to regional players expanding their footprints by both acquisitions and new builds. No strategic partners from analogous industries have been investors in the club industry.


Other relevant news The club industry is always con-


cerned about the theoretical quick-fix solution to weight loss. But commercial diet centres are still lacking long-term success with an exercise component. The proverbial diet pill has not been a serious threat yet.


Many club owners feel the threat of


competition from the non-profit sector. But, in recent years the components of this sector have seen little growth, including hospital wellness centres, lo- cal parks and recreation centres, JCCs, military base centres and member- owned clubs.


Key thoughts This year’s IHRSA financial panel


included York Capital, Roark Capital and Catterton (all private equity firms), and Benefit Street Partners (a debt institution). They emphasized that the club industry has a “tail- wind at its back for fundamental rea- sons. It is a great time to be in the club


“THE FAVOURABLE DEBT CLIMATE, WITH A RESERVOIR OF CAPACITY AND AT MOST ATTRACTIVE TERMS, IS IDEAL FOR CURRENT AND FUTURE CLUB COMPANIES.”


industry.” They see the industry as at- tractive for so many reasons, includ- ing its demographics which are mem- bership-oriented, recurring-revenue based, foundational and long-term. They like the different segments be- cause they offer customization and choices to the consumer. They like the stickiness of the industry and its strong word-of-mouth. The panel thinks that the industry will drive the health and wellness movement, espe- cially amongst local corporations. The advent of the niche studios suggests that they are getting an increased share of the fitness wallet. More con- sumers are being wooed into the in- dustry at large. Their key question is how the middle segment would re- spond to growth at both the higher and lower ends. The panel members reinforced the


opportunity for growth of the HV/ LP segment, as it may lead to sales amongst first-time industry users as


well as former club members. The ele- ments of a convenient location and an array of fitness equipment at a mini- mal price is more likely over time to attract a middle income prospect than previously. The panel cited the value of the franchise concept, the impressive unit economies, the reasonable start- up costs and the opportunity to attract in the future professional franchisees. They highlighted the very attrac-


tive debt environment which may be- come less so as interest rates begin to rise. The favourable debt climate, with a reservoir of capacity and at most at- tractive terms, is ideal for current and future club companies. For asset-based borrowers, the panel stressed the im- portance of screening for a real debt partner. When asked about the future, the


panelists all talked about the need for reducing the attrition rate overall, lower acquisition costs to attract a new member, the importance of making fa- vourable real estate deals, the pressure to re-invest annually in the physical plant and equipment, the proof that each of the new segments is working, the need for successful club exits and an ideal public company “poster child.” They all saw the need for a consumer- oriented, growth business over time. More predictability and better indus- try data will help the club industry sto- ry going forward.


Conclusions Most of the industry is optimis-


tic about the remainder of 2015, with continuing development of the stu- dios and HV/LP clubs. Expectations are that current clubs will have in- creasingly successful 2015 results. But, this is tempered with comments from many outsiders reminding the indus- try that it still may not reach the peak levels of success from 2007. FBC


Rick Caro is president of Management Vision, Inc., a club consulting company with exper- tise in helping clubs with club financials, club valuations, market feasibility studies, ex- pert witness testimony


and club sales/purchases. For more informa- tion, contact 212-987-4300 or mgmtvision@ gmail.com.


May/June 2015 Fitness Business Canada 29


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