HALO Talks Fast Break-Pete Moore, April 2025 M&A Deals In Market

Today's Thursday . . . so that means another HALO Talks-Fast Break! Integrity Square Founder and HALO Talks host Pete Moore, dives deep into the mergers and acquisitions current landscape in the HALO sector, highlighting key movements that will shape the industry for the next five years.

Pete discusses the sale of five companies from one private equity firm to another, including the announced sale of Crunch Fitness by the TPG Group. He explores the strategic decisions around debt, risks akin to those faced during COVID by companies like YouFIT and Gold's Gym, and the financial benchmarks set by giants such as Planet Fitness and Lifetime Fitness.

Pete also touches on two rapidly expanding sunbelt chains and area developers in the Northeast and Southeast. Tune in to understand how these fastbreak deals will set the tone for the future of the HALO sector. Go HALO!

A few key takeaways: 

1. Upcoming Private Equity Transactions: There are five significant companies in the sector that are set to be sold from one private equity firm to another. These transactions will be instrumental in setting the tone of the industry for the next five years.

2. Crunch Fitness Sale: The sale of Crunch, currently owned by TPG Group, is one such anticipated deal. It's predicted that the sale will aim for a multiple just under the 20 times EBITDA that Planet Fitness enjoys.

3. Debt Considerations: Another key point is how much debt will be used in these acquisitions. The amount of debt can impact the risk level of the business, especially if another unforeseen black swan event like COVID reoccurs.

4. Growth and Expansion: Two fast-growing chains in the Sunbelt region and substantial Northeast and Southeast franchises are also in play, showing a strong trend toward growth and expansion in the sector.

5. Public Company Benchmarks: Public companies like Planet Fitness trading at 20 times EBITDA provide a benchmark for private deals, influencing how these private equity transactions are structured and valued.

Resources

Crunch deal: https://www.reuters.com/markets/deals/tpg-explores-15-billion-plus-sale-gym-chain-crunch-fitness-sources-say-2024-12-03/ 

Episode Transcript

(00:02):
April 2025 fast break. This is PD Mo, captain
Halo, magic partner integrity square. You know me from
Halo talks, you know me from Halo Academy. However, my day job is doing
mergers and acquisitions in the halo sector.
What's happening over the next couple of months is going to set the tone for
the next five years in this industry. Let me tell you what's about to happen.

(00:24):
There are five companies that are going to be sold from
one private equity firm to another private equity firm.
And, hopefully, all those transactions actually are completed
and are not, quote, unquote, dead deals. The one that's been announced
is Crunch Fitness franchise or that is owned by
TPG Group. They've owned it for many years,

(00:46):
and we've gotten up to about 80,000,000 of EBITDA according
to people in the sector. That company will
probably try to trade somewhere south
of the 20 times EBITDA multiple that
Planet Fitness trades out in the market. We all know that Planet Fitness
has a higher margin profitability and a lower

(01:08):
build out cost. So we'll see where that trades. But the private
equity firm that buys that business is probably gonna try and position it
to take it public sometime within the next five years of their ownership.
So the question's gonna be, who's gonna buy it? And also, how much debt are
they gonna put on the business? Because the more debt you put on a business,
the more risky that business is such as COVID when we

(01:31):
had YouFIT, Gold's Gym, New York Sports Club
that in shape all filed bankruptcy. If there is another black swan event
and you lever up a company, you are now at the whim of
the debt providers if that EBITDA shrinks significantly
and if you're in default on any of your covenants. However, if everything
works out well, you put debt into a business, instead of writing a

(01:54):
check for more equity, your returns are going to be better at the end.
So we've also got two south sunbelt
chains that are growing very quickly.
One of them is over 60 clubs, another one is
over a hundred clubs. Those private equity firms are going to
sell to another group that are gonna continue to build out their plan. And the

(02:17):
question is gonna be how much debt is put on those companies to
actually buy the business because every dollar of debt you use to
acquire a business is a dollar less than you can use to actually
grow the business and either buy independent
operators or to build out construction on
growing the business. The only way I make money is a private equity firm. I

(02:39):
either buy companies that are low price or the chains and
rebrand them at a lower value than I got into. So I
have arbitrage or I build locations
and ramp them up from greenfields or I
substantially enhance the four wall unit economics of my club.
So there's also gonna be be two area developers

(03:03):
under a big brand that are substantial in the
Northeast and the Southeast. They're also owned by private equity firms.
So within the next sixty days, the private equity community
of all different sizes is going to be exposed to health
club operations, unit economics, franchise or
franchisee relationships, and the groups that get involved and buy these five

(03:26):
assets are gonna set the tone for the growth of the
industry and also the debt levels of this industry.
It's very good right now that Planet Fitness trades at 20 times EBITDA
because as a franchisor, you could say, I should be close to that
umbrella financing multiple. And that's
what it's worth for Planet. So how close am I to Planet? And

(03:48):
Lifetime Fitness is at 17 times
EBITDA. Two nice public company multiples
that are now used as benchmarks to try and get a private deal
done. So see what's gonna come about over the next several
months, and the next five buyers are gonna dictate a lot of the
growth in this industry. And hopefully, that growth is

(04:10):
profitable growth, and we maybe have five new
public companies within the next five years in the halo
sector. Go halo.