One new public company was cre-


ated, Planet Fitness, on the New York Stock Exchange. One more registered (Soul Cycle, a boutique group cycling company owned by Equinox Fitness), but it has not gone public yet. An unusual transaction occurred


with a few 24 Hour Fitness clubs switching ownership to LA Fitness in one state and the reverse happening in two other states. A couple regional franchisee groups


were sold to private equity firms. Many current club owners are in-


terested in a potential sale, but they are reluctant to sell until the market returns to 2006-2007 levels. There are not many motivated buyers, except at lower prices. Independent club owners are therefore seeking future owners who are not necessarily existing com- mercial clubs. There have been no international


companies investing in the U.S. club industry and vice versa. Only cer- tain franchisors are showing remark- able growth outside of North America. There have been no strategic buyers from analogous industries investing in the club industry.


Other Relevant News The club industry always wor-


ries about other quick-fix solu- tions to health, specifically weight- loss problems. To date, the FDA has not approved any miracle diet pills which have gained market share. Furthermore, the pure diet centres have not achieved any newfound suc- cess in long-term solutions without an exercise component. The concern for many club owners


continues to be around the unfair ad- vantages enjoyed by non-profit compe- tition. However, in recent years there has been minimal funding to create new non-profit recreational facilities, including in the categories of hospital wellness centres, parks and recreation


centres, JCCs, military base centres and member-owned clubs. The only category which is building


fitness facilities is universities, which often spend $60-$80 million. They are overbuilt intentionally as they seek out one-time bond financing. The real challenge for local clubs is that they then may make them available to lo- cal alumni or all outsiders (under a “booster” category) at well below mar- ket rates. A challenge for all American clubs


is trying to take advantage of the Affordable Care Act. Most clubs are still struggling to find a meaningful way to do so. On the legislative front, clubs are being challenged by state- level initiatives that could interfere with a club’s operations or impose ways to make it more costly to run the business.


Key Thoughts From the Financial Panel This year’s IHRSA Financial Panel


included JP Morgan, Piper Jaffray, Moelis & Co. and Deutsche Bank Securities. All of the panelists have had very recent experiences with club transactions and with different perspectives. Collectively, they liked the club in-


dustry as the market has attractive de- mographics, has increasing disposable income, has a growing population and an interest for all those in seeking out better personal health. As an indus- try, it has a proven track record with successful exits by financial firms. It has attractive leverage and impressive EBITDA margins. Its returns are im- pressive, with a lot of predictability be- cause of the recurring revenue model. It has a “tailwind at its back.” Some of the panelists noted that the


industry was changing: They noted that women make 80-90 percent of the family’s purchasing power; The millennials were looking for different


“Continuing significant growth was seen in the studio market. This included new facilities in the barre class, HIIT, yoga, boxing/ kickboxing, group cycling and small-group training categories.”


concepts, hence the advent of the sin- gle-activity studio and marketing ag- gregators like Class Pass; Many users were looking for improved consum- er experiences, and; There was an in- creased focus on user connectivity and on overall wellness. The studio segment was targeting


more personalization, specialization and customization. Users were will- ing to pay more for experiences with an interest in a variety of classes and different behaviours. The benefit of gaining a sense of community and connecting with a brand (often very local) was highlighted. For some, it was important to get quantifiable results and create tracking abilities. For some studio users it was important to get away from the overstimulation of elec- tronics and to focus on social outlets. Apparel, especially branded logowear, can be attractive to this changing audience. The panel also reviewed the cur-


rent status of the HV/LP clubs. They are proliferating in number with both national and regional brands. They are attracting first-time club users, second-club members who are add- ing this alternative to their main club affiliation, and former club members. Their story has challenged the middle- market clubs, who the panel felt had dropped their prices too quickly. They seem to co-exist with niche studios quite effectively. There was a lot of commentary


about millennials, who need engage- ment, ease of registering and use, a sense of community, unique con- tent, superior and almost “celebrity” instructors, specialized content, à la carte pricing and a brand. In terms of long-term projections,


they saw fewer studios in five years, a need to get the federal government to provide tax breaks for exercise (PHIT and WHIP bills), more capital coming into the club market, the middle mar- ket adjusting and figuring out individ- ually by club how to differentiate itself and the entrepreneurial aspect still driving the industry. FBC


Rick Caro is the president of Management Vision, Inc., a club consulting company with ex- pertise in helping with club financials, valua- tions, market feasibility studies, expert witness testimony and sales/purchases. Contact Rick at 800-778-4411 or mgmtvision@gmail.com.


May/June 2016 Fitness Business Canada 25


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