7 Tips on How to Buy a Fitness Club or Business

7 Tips on How to Buy a Fitness Club or Business

Finding a great fitness club or business to buy is a lot hard work. Most buyers review dozens of deals each month, and many buyers will evaluate hundreds of deals before they find a club worth acquiring.

Part of the challenge is that there are far more buyers than sellers of quality health clubs. Consider this: Sports Club Advisors has over 2,000 registered buyer who want to receive notices when we have a new health for fitness club for sale, but in most years we only bring 6-10 new clients to market each year.

The problem is not just limited to a lack of fitness club or businesses for sale. Buyers routinely complain about how hard it is to find a transaction that is worth pursuing.  Common complaints we hear from buyers include:

  •     Unrealistic expectations of value on the part of sellers
  •     Inaccurate or incomplete financials or operating data
  •     Hidden liabilities like unresolved member complaints or improper payment of independent contractors

Given these challenges, how can you increase your chances of finding a great fitness club to buy? Here are seven tips to help you with your search.

Tip 1: Develop Clear Criteria

The best buyers act quickly. With so many buyers looking, and so few quality deals coming to market, you need to make decisions quickly.  To speed up your ability to evaluate the deals, put together a clear list of your acquisition criteria. This list will act as your guide and gatekeeper to help you determine which deals are worth pursuing and which deserve a quick pass.

Putting together a clear, well-thought out list of acquisition criteria will take some time and effort.  Here are a few things to consider as you build your criteria list:

  • Develop a weighted list. No all of your criteria will be equally important to you.  There may be some items that are non-negotiable while other items might have some flexibility.  Figure out what’s most important to you and then list them in descending order.
  • Find a balance between being too general and too specific. Most buyers send us acquisition criteria that is either too broad or too narrow. Either every deal matches their criteria, or no deal meets their criteria, and neither is helpful to you. Think carefully about what is really important to you and make that very specific, but be more general on your less important criteria.
  • Update and Revise Your Criteria. As you evaluate opportunities and get familiar with the marketplace keep track about what you liked or didn’t like about each deal or club and use that information to update your list and help you make your future decisions faster.

Your acquisition criteria should be your objective guide to evaluate opportunities, but you should always apply a subjective element to your evaluation as well. This should be your basic “gut check” about a business. If the business meets your objective criteria, do you like and trust the owners?  Do you like and trust the staff?  Do the members and clientele seem reasonable?  If you decide you do not like a business for some reason offer the seller or broker quick feedback and move on.

Tip 2: Become Friendly with Club and Gym Brokers

There are many ways to find fitness clubs or businesses for sale, and club brokers represent only a portion of the fitness club or businesses that are for sale. Brokers that specialize in selling fitness clubs, boutique studios and gyms, typically screen clients before accepting them or taking them to market. With a club brokers, you have a higher probability of finding a quality fitness club or business for sale.

However, don’t just blindly register with brokerage firms and hope that you will get notices of a new listings. Take the time to network with brokers extensively. Get to know the brokers personally. Give them a call and talk about the industry. Share your experiences, your successes, and your failures.

Most brokers have an “A-List” of  buyers. The A-List Buyers are buyers that a broker knows are actively in the market and is committed to buying a club or gym or fitness business. These are buyers that a broker trusts enough to share opportunities with before they come to market in the hopes of getting early feedback before entering the broader market.

If a broker starts to share deals with you before the rest of the marketplace, you will be able to get an advance look at a business for a few days before the broker takes it out to hundreds of other buyers.  Of course, if a broker starts sharing deals with you before you put it to market, you will be expected to offer quality feedback on a timely basis.

Tip 3: Approach Fitness Club or Business Owners Directly

Many buyers limit their search for a club or gym to two places: marketplaces and brokerage firms.

However, why not write directly to fitness club or business owners to see if they would be willing to sell their fitness club or business? There are pros and cons to this approach. The pros are:

  • You Get Better Deals. Writing directly to fitness club or business owners allows you to reach fitness club or business owners who never considered selling. It’s a numbers game so if you write enough people, you may find a fitness club or business owner who is an absentee owner and no longer actively involved in their fitness club or business. For these owners, selling their club has probably been on the back of their mind and your letter might just incent them to start a discussion with you.
  • It Simplifies Things. When you approach an owner directly to buy their fitness club or business, it makes it simpler for the owner.  He doesn’t have to hire a broker or try to sell it himself.  He doesn’t have to worry about the club being “on the market” and having his employee find out. In addition, a direct transaction is often more relaxed and focused on creating a win/win transaction.
  • Less competition. Sports Club Advisors has over 2,000 buyers actively looking for a fitness club or businesses to buy, but we only bring 10-12 clients to market each year. So when you do look at a good listing, from a broker you are likely competing with dozens of buyers. When you approach someone directly, you usually have the luxury of less competition.

However, contacting fitness club or business owners to see if they would be interested in selling has it downsides too.  Here are some of the cons:

  • It is a numbers game. Many of the buyers we’ve worked with report several challenges, beginning with getting a good list.  Buyer often say that it takes them weeks to put together a list of targets that they think will fit their acquisition criteria. Since a good response rate is between 1-3% depending on whether you call or write, that means you will need to call or write email 100 people just to get 1-3 responses.  Then they need to find the time to call or send letters to 200-300 potential targets.  The finding the time to follow-up with each of them a month later.
  • Rejection is Part of the Game. Because the response rate is between 1-3% that means that 97-99% of the owners you contact will simply ignore you.  The polite ones might respond by telling you they are not interested.  The less polite ones will yell at you and tell you not to bother them.
  • Opportunistic Sellers are Poorly Prepared. When you find an opportunistic seller he or she will typically not be prepared.  They may not have financial statements and operating data this is prepared, reviewed and ready to be shared.  This can drag out the process for you and you may find yourself investing a lot of time and energy to collect the information to review only to discover months later that the opportunity does not meet your acquisition criteria.
  • Sellers may be unrealistic. When you approach a seller unsolicited, it naturally puts them in the “driver’s seat”. As a result, a seller may have no idea what their club or gym is worth and as a result may pull a number out of the sky, or figure the club must be worth enough to allow them to retire.  Either way, even if the club meets all of your other criteria the seller may have unrealistic expectations of value that you cannot change.

Tip 4: Register with Online Marketplaces and Brokers

Finding a good fitness club or business for sale is a numbers game. You need to look at as many deals as possible in order to find the perfect acquisition target. Fortunately, if you register with them most club brokers and marketplaces will send you email alerts on any new listings. This will make your daily inspections relatively easy.

Tip 5: Network, Network, Network

Wouldn’t it be nice if deals just came to you? Well, they can if people know are seriously interested in buying a fitness club or businesses and you have the money to do so. The best way to get known as a serious buyer is to network within the industry.

Conferences and networking events are a good way to meet many people and get the word out, but it can be expensive, especially if you are traveling around the country.  Instead, we recommend that you network by telephone and email with a targeted list of industry leaders.  Send them your acquisition criteria.  Tell them how much money you have to invest and the source of your capital.  Then stay in touch with them on a monthly or quarterly basis to update them on your search.

Tip 6: Hire a Merger & Acquisitions Advisor to Help You Source and Evaluate Deals

As I said earlier, finding the right deal is a volume game. You could easily spend most of your time reading through email notices, browsing online marketplaces, and networking.  Rather than spend your time doing this, you might find it simpler to hire a club broker or mergers and acquisitions advisor to conduct a buy-side search for you.
Follow the tip above and develop a criteria checklist. Then hand this list over to the club broker and have them find deals for you. They can either run a “passive” search or a “pro-active” search for you.  In a passive search, they will screen their prospects and active clients, sort through notices and online marketplaces and contact you when they have something that they think might interest you.  In a pro-active search, they will do the above, but also pro-actively reach out to club owners on your behalf using a combination of letters, emails and cold calls to find opportunities for you that meet your acquisition criteria.

Tip 7: Always Explain Why You Are “Passing”

Buying a Fitness Club or GymBecause buying a fitness club or business requires evaluating lots and lots of deals, you’ll likely make a few mistakes along the way. One mistake many buyers make is to dismiss a deal based on a misunderstanding of the business.  If you mistakenly pass on a good opportunity it could take months to find another good fitness club or business.  The best way to avoid this mistake is to always tell the broker or seller why you are passing or not pursuing a particular business. Not only will the seller or broker appreciate the feedback (brokers will often give preference to buyers who give regular feedback), but if you are mistaken, you’ve given them the ability to help correct any misperception and could save you a lot of time and aggravation.

Conclusion

Finding a great fitness club or business to buy is a numbers game, but it is also about being smart and designing an intelligent search and using the right resources to help you identify and evaluate deals properly. Most importantly, be patient. It can take 6-24 months to find a quality club or gym for sale, but when you do, you’ll be glad you did.

If you are interested in talking with a club broker about a buy-side acquisition search or would just like to network, please contact Sports Club Advisors at rjackim@sportsclubadvisors.net.

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