Seasons Greetings from New York City at Integrity Square’s (“ISQ”) U.S. headquarters at the epicenter of the $6.2 Trillion Health, Active Lifestyle & Outdoors (“HALO”) sector! Wanted to share a brief summary to recap the U.S. 2024 HALO Capital Markets and Mergers & Acquisitions along with a crystal ball for 2025!

If we rewind the clocks to pre-COVID, private equity firms and institutional debt providers were investing across all segments of the bricks n’ mortar players with two franchisors absorbing the most growth equity investments: Planet Fitness and Orangetheory Fitness

Why? Because the UNIT ECONOMIC FINANCIALS MODELS were proven, the business was scalable, the cash-on-cash returns on new units were under 3 years, and the franchisors were set up to accommodate private equity . . . which means EXCLUSIVE Area Developer Agreement (“ADA”) rights. ADA rights are a critical key ingredient to higher valuations and provide the white-space to replicate the growth of new units (at the time, with cheap debt & no personal guarantees.)

When COVID hit, the private equity firms (and ME!) turned into Certified Executive Therapists and worked with landlords, borrowers and the states to stay alive. Planet continued to flourish, while Orange Theory members were not as quick to return to the studios, which created a leverage overhang for many investment firms with OTF ADAs. 

In my opinion, the pandemic actually did some owners of fitness studio concepts a favor…odd as that may sound; because it gave under-performing operators who didn’t have a viable business model the opportunity to exit gracefully, break leases and lick their wounds. (We conducted a webinar about this topic exclusively in April 2020.) 

Takeaway: When you mix “Capitalism and COVID” you don’t get a solid playing field for new entrepreneurs with nascent start-ups; therefore, very few brick and mortar investments were made in 2020-2022 as investors rightfully window-shopped concepts that were recovering, but why should they invest until things returned to pre-COVID KPIs? Therefore, M&A was mostly quiet except for Planet ADA’s and selected “Red State” based businesses.

Fast forward to 2023-2024 – the famous quote from the Terminator movie –”I’LL BE BACK!” – best sums up the renewed bullish interest by debt & equity investors in the HALO sector which will continue for the foreseeable future. Some of the highlight reel:

• Crunch ADAs were funded by Trive Capital, CapitalSpring, VMG Partners, Meaningful Partners, Seacoast, North Castle Partners and other PE firms.

   

• Two large Club Pilates franchisee platforms raised debt from Comvest Partners and Fortress Group, respectively, as the Pilates modality kept trending with members and superior unit economics while retaining a premium price point.

   

• Another great success story is [solidcore], which was sold to L Catterton after Kohlberg & Co, VMG Partners and Peterson Partners funded the team’s growth and took a contrary view of the COVID opportunity to pounce on great real estate deals. And now on the other side of COVID they’re at 100 studios in 25 states.

   

• In the middle market, consolidation is the strategic growth plan to build market share quicker than greenfields, which are subject to inflation and delays and permitting and pre-sales. Buying a club at 5x club-level EBITDA with a fair market, long-term lease will pencil out as the “buy versus build” decision; hence the M&A activity will continue on. 
• To name just a few: Baileys Gym sold to CHUZE Fitness, Mountainside Fitness brought in Garnett Station Partners for the next phase of growth, Pivotal Fitness in SC was sold to a CRUNCH ADA, XSport sold to LA Fitness, Atlantic Clubs sold to Genesis, inSHAPE merged with California Family Fitness (and then acquired NFC1 in TN.) 
• And as an internal deal, Roark Capital, one of the largest investors in franchising globally, merged Anytime Fitness and Orange Theory Fitness (already Roark portfolio companies) into a large holding company. Let’s monitor how that creates synergies and international growth for these leading HALO brands.

We expect several HALO companies to file IPOs to go public next year to join Planet Fitness (TICKER: PLNT; trading at 20.7 EBITDA), Xponential Fitness (TICKER: XPOF; trading at 37.24 EBITDA), and LifeTime (TICKER: LTH; trading at 15.04 EBITDA) as a potential HALO Index tracker, we hope!

And now for our ISQ Crystal Ball of what will likely happen in 2025:

• New private equity firms will acquire major software companies such as ABC Fitness, Club Essentials, DAXKO, MindBody, and others); the new ownership groups will require binging on add-on acquisitions at multiples of REVENUE (not multiples of EBITDA) and continue on the relentless pursuit to own & control the full “tech stack.”
• The above and smaller SaaS players with long-term contracts that serve the HALO sector will be valued like the Brain . . . housing the intelligence then the Artificial Intelligence tools plus the billing and databases behind fast-growing businesses.
• We predict unfortunately that too many new concepts will be built and then sold as franchises by franchisors who haven’t figured out their “Operating Playbook.” This will have a negative impact on the sector and on ambitious entrepreneurs . . . so if you are signing a franchise agreement, please ensure you are signing up to operate a profitable business model or don’t pay a royalty for negative results.
• GLP-1 workouts will be everywhere and “seatbelt extender” sales will go down by 50%.
• There will be a title wave of support from the “Make America Healthy Again” movement which I hope will result in funding education for families of all ages, sizes, and not limited by demographics and where the is already a Whole Foods.

In closing and to remind you: (i) love what you do, (ii) own the results, and (iii) never stop innovating. EVERY DAY you are affecting people’s lives, their happiness and you are the “tip of the spear” in the HALO sector collectively to help solve loneliness, eradicating childhood Diabetes and dramatically reducing obesity globally. 

Now go back to your playbook and WIN, WIN, WIN!

Be sure to subscribe to HALO Talks & get you (and/or) your staff educated at the HALO Academy.