HALO Academy Two Minute Financial Drills: The Three Strategic Buyers Circling Independent Operators Right Now
It's Thursday and that means a 2 Minute Financial Drill! Now that we're slowly creeping into the fall and the pending restart of the HALO Academy in a new format (more on that later) keep an eye out for these.
This one is clipped from Pete Moore's panel with Brian Smith at Piper Sandler at this past Athletech News ATN Summit in NYC.
● PureGym US, Crunch area developers, and Planet Fitness area developers are the three strategic buyers actively circling independent clubs right now.
● These buyers are contractually obligated, through franchise development milestones, to open in a market whether or not an independent operator agrees to sell.
● Irrational development, i.e. overclubbing a market, is described as the biggest risk to profitability for independent operators and investors alike.
● If a strategic buyer reaches out, engaging is recommended over ignoring the outreach, since they will build around an operator who doesn't transact.
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Yeah, some of the deals that we've done recently and some intel on some of
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the players in the space. Pure Gym, which is a group out of the
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UK, entered the US with 3 prototype
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clubs down in the DC market. Their original
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plan was to do area development agreements. Then they got their
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hands on the Blink assets that were sold out of
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bankruptcy that were owned by the Equinox-related
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holdco. And then what was interesting is that Leonard Green,
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which is the owner of Pure Gym, ended up buying Crunch.
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And because of that, Pure Gym was basically prohibited
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from doing franchising in the U.S. market in order to
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not have one private equity firm with 2 competing
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franchise disclosure documents in the same market.
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So we sold a couple of clubs to Pure Gym, which are independent operators.
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We're going to talk about this theme today of a lot of independent
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operators that own clubs for 20 to 35
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years since we've been doing this are looking for exits. And there are
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3 clear strategic buyers out there right now with
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capital. One is Pure Gym. The other are area developers
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under the Crunch flag and Planet Fitness area
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developers. So those are the 3 groups that are contractually
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obligated to go into a city and compete with an independent
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operator. And what we're trying to do, Brian and I are trying
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to be the conduit to get those independent operators to
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transact and convert to the other brand
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instead of trying to compete and maybe have an overclubbed city. And then the
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profitability of that city kind of shrinks because of the number of clubs.
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I've always said that irrational development is the biggest issue in our industry,
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and I think that's the biggest risk for most of the investors that are here.