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With markets opening during the past year, private equity firms are becoming more interested in the fitness industry. Industry insiders say that the industry’s recession-resilient reputation, increased mergers and acquisitions in the industry, plus an impending capital gains tax deadline have led to more activity as 2012 heads down the home stretch.
In addition to franchised companies, the private equity activity in the industry this year also has included niche fitness concepts, such as TRX, Zumba, The Bar Method and, possibly, CrossFit.
In April, TRX, San Francisco, announced that Castanea Partners, Newton, MA, had purchased a minority interest in the suspension trainer manufacturer. Terms of that deal were not disclosed, but Castanea Partners said it typically invests between $15 million and $75 million of equity in companies with specifically targeted industries. Partnership Capital Growth represented TRX in the transaction.
A month earlier, Zumba Fitness, Hallandale, FL, received a minority investment from The Raine Group and Insight Venture Partners. The Raine Group plans to grow Zumba further internationally, particularly in Asia and the Middle East, with the help of WME Entertainment.
In August, Mainsail Partners announced an equity investment in The Bar Method, which has more than 60 barre-based exercise studios and produces home-exercise DVDs.
The deal that has not been consummated but is generating a great deal of discussion in the CrossFit community involves Bryan Kelly of Anthos Capital, a private investment firm. Kelly and Anthos Capital have entered into an agreement to purchase the ownership interest in CrossFit for $20 million from Lauren Glassman, who is embroiled in divorce proceedings with her husband, CrossFit founder Greg Glassman. Cross- Fit filed a tortious interference lawsuit last month in California against Anthos Capital.
Private equity money in the fitness industry is going to niche concepts and franchised companies and not to traditional club operators, Smith says, because of the heavy capital required for reinvestment in traditional clubs.
“You can’t put a lot of leverage on the business,” Smith says. “If you do that, you can’t grow.”
Michael Scott Scudder, managing partner of The Fitness Industry Group, Taos, NM, agrees that one of the reasons niche markets are a focus for private equity firms over traditional clubs is because of bifurcation—the growing divide between low-price clubs and high-end clubs, with an eroding middle market.
“I think [private equity firms] see the writing on the wall with bifurcation and are hustling to get into certain niches in the industry to be able to dominate a sector in selected markets,” Scudder says.