It is the “little guys” who have grown regularly in the last one-plus years, despite a recession and debt challenges. A two-club group may have added two clubs; a three-club group may have become a five-club chain. Generally, the expansion was local, and was just as likely to be an acquisition as a new build.

Debt became available from local banks (either small banks or local branches of major banks). The debt was based on asset-lending (either real estate or leasehold improvements, plus furniture/fixtures/equipment and the value of the business, if existing). Many of these operators were able to borrow money and not have to sign personally, if a track record waspreviouslydeveloped.

It is these operators who have confidence–and the ability to secure the resources–to continue to grow locally. They may lack a capital financing plan, but they are able to consummate one to two deals a year, and grow in their comfort zone. And they are starting to address branding by naming all of their fitness centers with a common or linked name.

The other element in play is that the valuations for fitness facilitieswere slightly reduced over the recent year or so. This means that the lack of leverage (or cost of borrowing) has forced club deals to drop down, often byone multiple or so. Translated, this means a previous six-multiple times Adjusted EBITDA is now into a 5- or 4.5-multiple times Adjusted EBITDA.

It has lessened the number of current club owners who are motivated to sell, because they can wait for better financial times. However, it also may lead to a quicker deal-making process, if two motivated and realistic parties come together.

Finally, some new buyers are entering from outside the industry. This is partly due toindustry information availableto educate them, the greater predictability of the business based on electronic funds transfer dues, the enhanced image of theindustry, andthe future positive signals (e.g., the alignment of attractive demographics, positioning as preventive healthcare and as a lifestyle experience, expansion of programs for all types of people and the historical business success of clubs).

IHRSA recently published research indicating that clubs have increased their key metrics during recent recessionary times. Revenues and memberships have increased at attractive rates. This has further impressed the financial community.

Tags: demographics, industry, process

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