What a great industry. You can make a lot of money, work in a fun environment with fit people, and help your members look and feel their best.
But, how do you cash out your hard-earned equity when you’re ready to retire or move on to other opportunities?
We all know the challenges:
1. How do you advertise your club for sale without starting rumors that could jeopardize your business by upsetting your members or your staff, and especially without giving your competitors ammunition to use against you?
2. How do you qualify prospects without giving away your club name and location, and without having disruptive phone calls come to your front desk and pretend prospects tour your club?
3. How do you reach out to all of the prospective buyers at the same time, so that you have a chance of creating a bidding situation and getting an honest price?
4. How do you widen the buyer pool to include people who’ve never owned a club before?
5. How do you avoid having a third party trying to talk you into a lower price because they don’t get paid unless a deal happens?
6. How do you avoid paying expensive brokerage fees for services you may not need or from someone you may not be comfortable with?
Thankfully, there is now an exclusive listing service for sellers and buyers of health clubs. This new service overcomes the four main challenges we’ve all faced in trying to cash out.
REACHING QUALIFIED BUYERS EFFICIENTLY
For lack of alternatives, club owners have tried a variety of methods to advertise their clubs for sale, with mixed results:
Word of mouth
Classified ads in club magazines
Classified ads in city or national newspapers
Specialty business brokers
General business brokers
Residential or commercial real estate brokers
Generally, they have been disappointed. Problems include reaching only limited audiences, or the wrong audiences, or having to pay large fees for services not received. What sales do happen, often occur by hook or by crook, not by a proven method. So what does work?
The two largest and most obvious subsets of the buyer pool are existing club owners looking to add another club, and experienced managers looking to make the move to ownership. In addition, there are two categories of new entrants to the industry -professional investor groups who are attracted to the industry and approach it with professional business plans, capital and management, and of course, bottom fishers who are willing to pick up broken clubs in their local market if they can get in for a song.
A good listing service should advertise directly to the first three most promising buyer groups; in national publications, by direct mail, by email, by public relations efforts within the industry, including presentations at national conferences. In addition, a good service should be easily findable on-line using Google and other search engines.
CONFIDENTIALITY – KEEPING A LID ON RUMORS
Club owners are paranoid about confidentiality when they go to sell, and a well-designed listing service should give them six main layers of confidentiality:
Public/Private listing. To maximize the buyer pool, prospective buyers should be able to shop for free through their computer; by 40 or 80 mile radius of any zip code, by type of club, by price range (low, medium or high), and by state. However, the private parts of your listing should not be visible until the buyer has been properly qualified, and tirekickers, employees, and member have been weeded out.
Blind email system. Once a buyer finds a listing that sounds interesting, they should be able to contact the seller directly by email telling about themselves and inviting a response. Emails from sellers to buyers should not disclose your name, your club name, town, phone number, zip code or any other giveaway information. You should control when and if you share that information.
Web-based, spam-free, password protected. Since anyone could sit at your computer and look in your email box, all deal-related correspondence should be kept together in a spam-free email system that you can view from home or office but where no one else can see it unless they have your password.
Direct negotiation. Many club owners want to handle the negotiation themselves. Others prefer to have their trusted advisor handle calls and screen prospects. A listing service gives you the flexibility to go either way. Like the MLS (multiple listing system for homes), it is merely a venue for listing available clubs where buyers can easily find them. It does not represent either side in the transaction, and will never tell a buyer what price you might take, or whether or not other parties are currently interested, or any other information that might undermine your negotiation.
On/Off switch. You should be able to turn your listing “off” during a no-shop period, the busy season, while you’re away on vacation, or if you feel you want to lie low for a while. And, you should be able to reactivate it at any time. You should be in control.
Confidentiality agreement. Any lawyer can give you a confidentiality agreement. The problem is that the typical legalese makes no sense to the average person, so too often they don’t take to heart what they’re signing, and as a result, they disclose confidential information they shouldn’t. You need a confidentiality agreement that is written in plain English, in terms people can relate to, and that offers “teeth” by threatening to cut prospective buyers off from the deal flow if they don’t keep your information confidential as they should.
Confidentiality protections like the ones outlined above are your best assurance of keeping a lid on destructive rumors during the sale process.
MAKING A MARKET – KEY TO GETTING MAXIMUM PRICE
As the health club industry matures, there are now literally thousands of truly successful clubs. A significant number of these will need to change hands over the years, and they deserve to fetch full prices. Sellers will want to reach all potential buyers to find out who can and will pay the most for their opportunity.
At the same time, there are more big chains, more small chains, and more highly experienced managers looking to make their move to ownership. The latter are often willing to relocate for the right opportunity. They have more equity to invest and, with access to capital markets, are able to pay the kinds of prices the good clubs will go for.
In the past, if was hard to impossible to work all buyers at the same time. As a result, sellers typically negotiated with one buyer after another, in sequence, if they were lucky. In that scenario, buyers have a way of figuring out that they are the only ones in the running, and, too often, sellers get pushed around in the final horse trading or are presented with take it or leave it offers. This is not optimal for the seller, and has resulted in depressed valuations in the health club industry.
There are several ways around this problem:
Widen the market. A listing service makes it easy for buyers to shop for a club to buy right through their computer, exposing more people to more opportunities they might not otherwise know about. How are buyers attracted? A good listing service offers them four main benefits:
1. Shop for opportunities efficiently
2. Initiate contact easily
3. Post a profile where sellers can find them
4. Automatic notification via a Saved Search
Merchandise the unique and positive qualities of your club with full descriptions and pictures. This allows you to interest buyers that might be looking for something else.
Proactively reach out to buyers you think you might be able to interest, even if they haven’t noticed your opportunity.
Keep your listing posted even while you negotiate with any given buyer, so everyone knows that another buyer could come along at any time.
An active marketplace is your best assurance of getting an honest price.
DEAL-RELATED SERVICES
Often, sellers and buyers need help in areas in which they are not an expert. For example:
Many sellers have never sold a club before, so they tend to overprice. Naturally, helping them understand fair value is key to an orderly market.
Few buyers have obtained business acquisition financing. So, helping them to get bank financing is key to their ability to pay the full but fair price the seller deserves.
An industry specific listing service can help in these and other areas.
SUMMARY
An effective listing service should give you the following benefits
• Optimal exposure to all the right people
• Best possible confidentiality provisions
• Organized market-making features
• Deal-related support services available a la carte as needed
A twelve-month listing on a website such as this can be as inexpensive as $499 which helps to pay for system maintenance and national marketing efforts.
In upcoming months we will continue our discussions on “What is My Club Worth?” “How to Make Your Move to Ownership” and “Steps to a Successful Purchase/Sale.”
Peter Kroon is the Owner of Fitness Alliance. He can be contacted at 860.305.2203, or by email atpbkroon@fitnessalliance.com, or visit www.fitnessalliance.com.
