The evolving impact of the coronavirus is being felt everywhere—but especially in the health and fitness industry as social distancing and shelter-in-place become the new norms. This is a time of uncertainty in our personal lives and in our businesses. The closest thing I can compare it to is the uncertainty everyone felt in October 2008 as the financial crisis was unfolding.
Then, like now, business owners are seeing the values of their business plummet as clubs close indefinitely and members cancel their memberships in droves. Smaller health clubs and fitness centers are naturally more vulnerable in an economic downturn, but everyone in the health and fitness industry is affected in one way or another. Strategic buyers, investors, sellers, business owners, and business brokers are all trying to understand how this will impact them, and what they can do to mitigate the consequences.
Reflecting on the financial crisis of 2008-2009, however, helped me identify a few things that are likely as we deal with the impact of coronavirus on the M&A market and business sales.
Like in 2008 and 2009, M&A activity will most likely contract significantly over the next 3-4 months as the volatility in the stock market will likely put the M&A market on hold. For deals in the early stages, there will be a lot of anxiety on the part of sellers and a lot of caution on the part of buyers. As a result, we expect that many buyers and sellers will press the pause button to wait and see how the situation unfolds over the next few months.
But there are a lot of indicators that when the coronavirus scare is behind us, the M&A market will rebound with gusto.
“I’m bullish on the outlook for M&A activity in the long term once the financial markets adjust to the ‘new normal’. There is an unprecedented amount of capital that needs to be deployed, interest rates are at record lows, and the federal government’s stimulus package should make borrowing even easier. At the same time, the record high valuations that we’ve seen over the last year or two are likely to decrease, which will make financing acquisitions less risky and fuel a strong increase in M&A activity.”
Richard Jackim, Managing Partner, Sports Club Advisors, Inc., and Jackim Woods & Co.
If you own a fitness boutique or a health club and are thinking about selling, what does all this mean to you? First and foremost, it’s important to remember that while the next few months may be painful, and it may take you six months to a year to build your business back up to its 2019 levels, but the fundamental value of your business is likely still intact. If you were waiting for the market to peak before you sold you missed the window. But that doesn’t mean your business is unsaleable or that it has no value. The value is still there because buyers buy companies for the future cash flow that business will generate. That means buyers take a long-term perspective. If your business is fundamentally sound, it is very likely that its value will rebound once the economy and our lives return to the new normal.
Many of the business owners I’ve spoken to in the last few weeks believe that the current market conditions will scare away buyers. That is true in the short run, but savvy financial and strategic buyers recognize the short-term nature of this crisis and see this as a good opportunity to buy a good business at a lower multiple of EBITDA than last year.
If you’re thinking of selling your health club or fitness center it’s important to work with someone who understands the dynamics and changing motivations of sellers and buyers to advise you during these uncertain times. Below are our recommendations for business owners to take over the next 2-3 months if you are thinking about selling in the next few years.
- Focus on Exit Planning (talk with us about our formal process that can use this time to help you and your business get prepared for sale)
- Get a valuation of your business (so you understand how much your business is worth)
- Understand what you can do to improve the value of your business and make it more attractive to potential buyers
- Talk to your financial advisor to understand how much you need to retire
- Work with an M&A advisor or business broker to begin putting together a data room and formal marketing materials so you can hit the ground running when the market recovers.
Our team is comprised of experienced investment bankers and M&A professionals who literally wrote the book on exit planning. We helped over three dozen companies between 2008 and 2010 help get ready for sale and then sold them for top dollar when the market recovered. We will provide you with a value-focused, hands-on approach to help you develop a strategic exit plan that allows you to exit your business on your terms and for its highest possible value.
If you are interested in selling in the next three years and would like to talk to a licensed business broker and M&A professional about how this crisis affects your options, please feel free to contact Jim Bates for a FREE, confidential conversation at jbates@sportsclubadvisors.net.