Frequently Asked Questions
Buying a health, fitness or sports club, or any fitness related business, can be a complex and daunting process for many buyers and sellers. After speaking with hundreds of business owners and thousands of buyers, below is a summary of some of the most common questions we receive regarding our process and listings. If you have other questions, we encourage you to contact us! We’d love to answer any questions you may have.
Questions on Our Listings
Yes. We have certain criteria a company must meet before we will take them on as a client. Once they become a client we have a rigorous preparation process to ensure that every client that Sports Club Advisors represents has provide us with detailed financial statements, detailed membership reports, and complete a lengthy Q&A regarding the history and operation their club or business. In addition, every client is informed that they will be expected to make representations and warranties about the accuracy and completeness of this information, to the buyers as part of any purchase agreement.
Sports Club Advisors reviews each client’s financial statements prior to taking a client to market. During the transaction and due diligence process you will be able to inspect the club or company’s financial statements, bank statements, merchant account statements, club management software, and tax returns to ensure that all of the financial and operating information ties out.
We do not have a regular schedule for releasing new listings. We take new clients to market as they become ready for sale. That being said, because we are highly selective regarding whom we take on as clients (less than 30% of potential clients actually become clients) and we never send more than one opportunity per week to our database of registered buyers. We also send our buyers monthly summaries of all of the clubs and fitness businesses that we are representing for sale. If we email you too often you may elect to only get the monthly summaries or opt out of our email list entirely.
We encourage all people who are interested in buying a health or sports club or fitness related business to register for our email notices – it is the best way to stay ahead of the marketplace. Other than this service, if you are actively looking for a business to acquire and have highly specific acquisition criteira, you should talk with us about our available listings. Understanding a specific market demand allows us to better screen our clients for your needs. When a business comes to market that we know meets your particular needs, we will bring it to your attention.
In addition, for certain buyers we will run a buy-side search program and use our proprietary database of over 8,000 prospects to reach out to fitness clubs and healthy life-style businesses that meet your criteria. Talk with us to learn more.
Questions on Valuation, Offers, and Financing
Determining the value of any business takes experience, research and time. While a lot of factors go into a final estimate value, in general we use what is known as the cash flow discount multiplier valuation method. This values a club or business based on the company’s adjusted EBITDA or cash flow, and a market based expected rate of return for the buyer.
Every transaction is different. In roughly 70% of the deals we’ve done, seller financing played some part in the overall deal structure. We advice our clients to approach seller financing just like a back would so the amount and terms of that seller financing depend in large part on the identify of the buyer, their operating experience, and their credit rating. That said, most clients prefer buyers who do not require seller financing and for highly desirable clubs or businesses, requiring seller financing puts the buyer at a disadvantage. The strongest businesses for sale – those that contain relatively low levels of risk and high levels of potential – will almost always get multiple all-cash offers from other buyers.
An earn out or performance based financing involves having a portion of the purchase price be dependent on the future success of the business. The most common examples of performance based financing would be owner revenue sharing, bonus payments for revenue thresholds that are met, or a combination of the two. Performance based financing is something that is available on certain businesses. There are two common scenarios in which we seek performance based financing. If a seller has recently seen a significant growth in revenues and income, but does not have enough history for that recent increase to impact their valuation, we may seek some form of performance based financing in order to help them get compensated for this recent growth. The other common scenario is when there is a significant risk with the business that needs to be accounted for. Buyers should be noted that most sellers are not interested in performance based financing as they do not have any control over the decisions a new owner will so there is considerable risk to the seller with this approach. Just as any buyer will try to reduce their risk as much as possible, sellers want to reduce their risk as well. Given that there is a high likelihood that most clubs or businesses can receive a near all-cash offer, while performance based financing is a possibility, it should not be counted on.
We are occasionally retained by clients to raise growth capital for health, fitness or sports clubs that are looking to make a strategic acquisition, to open new locations, or to begin franchising. As a result, we are always interested in speaking with individuals interested in investing in companies in the fitness and leisure sectors. That said, most of the companies Sport Club Advisors brings to the marketplace are brought with the intention of being acquired in full.
Absolutely. Banks like the stable, recurring revenue model of health, fitness and sports clubs that come from a large, diversified and stable membership base. For larger sports clubs like tennis clubs or golf clubs that own their own real estate, banks like the significant hard assets that can be pledged as collateral. Many banks specialize in financing fitness and health clubs. The Small Business Administration is also a great option for entrepreneurs interested in buying a fitness club. If you are one of our registered buyers and you find a club you would like to acquire we would be happy to explain the financing options to you and introduce you to several financing sources.