What’s Your Club Worth? …What Would You Pay For It? Part 2
This article is a six part series originally printed in 2009, it has been updated and rereleased for 2011.
** Read Part 1 Here **
By Mike McPhee
As pointed out in the 1st article of this series (Oct/11 FitNet), profitable clubs sell in the range of 3 to 6 times EBITDA – Earnings Before Income Taxes, Interest, Depreciation and Amortization. (With the caveat that, when all is said and done, your club is ultimately only worth what someone else is willing to pay you for it.)
As promised, in this E-issue, we will list the critical variables that will influence (favourably or unfavourably) the times-EBITDA-factor appropriate for your club. Proper evaluation and application of these non-EBITDA featrues will ensure that you receive maximum assessment value for your operation – in other words, substantially more than it would seem to be worth - based solely on its current and/or historical financial performance. This applies whether you are a club owner planning to sell your club, or are just preparing a presentation to banking officials and/or potential investors for refinancing purposes.
Not surprisingly, the “list of non-EBITDA features or factors” that influence the value of your club are no different than the “list of questions” you would want answered during the process of conducting a thoughtful and thorough due-diligence process, in the event that you were looking to buy another club.
Below, I have provided a list of the most influential, club value-related factors - that for the most part (unlike EBITDA) can not be investigated or evaluated by simply reviewing a particular club operator’s financial statements.
* The club’s location in terms of access, visibility, and market capacity & demographics
* The lease, the landlord, our fellow tenants/business neighbours – and their markets and traffic volumes
* The size, condition, design and structure of the physical plant and its mechanical systems; and its adaptability-factor in terms of future leasehold improvements and/or expansion.
* The Parking – member spaces, access and cost – if any
* The value, condition, depreciation and debt-ratio status of the chattels on site
* The number (condition and accuracy) of the membership database and the computer hardware and software programs used to manage it
* The membership profile in terms of; especially in terms of the percentage of members on monthly contracts vs. prepaid term commitments; the terms of those contracts, and the legal implications of local provincial or state consumer protection laws concerning pre-authorized payment plans going forward that would enable a new operator access to a uninterrupted billing cycle;
As well as other goodwill factors, such as:
* Historical membership retention rates
* The nature and value of ancillary revenue streams – other than membership dues
* Current employee commitments and obligations
* Outstanding litigation proceedings
* The current operator’s track record and reputation
* The current operator’s brand recognition, track record and reputation
In the next issues, we will address the most effective manner by which to evaluate each of these factors, to ensure that the vendor receives maximum value for them.
Mike McPhee is a 30-year veteran of the club industry, who spent his first 20 years general managing two of Canada’s most profitable multi-sports and fitness clubs, before starting his own independent commercial club design, marketing and management consulting company, Club TeamWorks. Over the last 10 years, he has provided over 100 clients throughout North America with hands-on support with customized reports, systems, and business plans; as well as public relations support and brokerage services. Mike can be reached at clubteamworks@hotmail.com.
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