What is Your Club Worth? Part 3
By: Mike McPhee
In our previous article, we listed a dozen or so factors that will influence the value of a club – that is factors, if researched, consolidated and featured properly, will increase the value (“the multiple-X-EBITDA-factor”) and eventual selling price of your club.
We also suggested that club operators will on average fetch anywhere from 3 to 6 times EBITDA for their leased operations. The question, therefore, becomes, why are some operators able to fetch as much as (or even more) than 6 times EBITDA, while others are left with as little as (or even less than) a factor of 3 times? In the case of an operation with $250,000 EBITDA, this could add up to differences in the hundreds of thousands (even millions) of dollars.
Admittedly, some luck is involved… as the “right buyer” has to be available in the “right market” at the “right time” for the “right club”.
Having acknowledged the “luck-factor”, I am always a little taken back when club operators approach me about selling their club with significant ROI expectations. Yet, when I request the necessary stats and data required (in order to make a proper presentation to a potential buyer and satisfy their due diligence process), more often than not, I am handed a dog’s-breakfast of financial statements, membership data and/or marketing materials – that either fall well short of the potential buyer’s due diligence needs and/or in a format that is incomprehensible.
Therefore, my advice to all owners/operators with aspirations to sell their club(s), and no doubt, hoping to maximize interest and recruit multiple offers in the process, is to be prepared to invest the time and/or dollars required to prepare a proper prospectus – a report that sheds the best light possible on your overall operation. Besides providing your potential buyer with the necessary “accurate” current and historical financial and membership data, lease terms and rates, and relevant market data; such a report should also promote your club’s most redeeming qualities (and all clubs have some) - and conversely, downplay its shortcomings. If you do not provide this propaganda for your perspective suitors, they will be left to form their own opinions – with little or any input and/or influence from you.
As well, most if not all, wanna-be-club-operators (or existing operators looking to expand their enterprise), will eventually share their research with a qualified business consultant and/or accountant; and more often than not, it is during this process that the quality of your presentation and the accuracy of your background information, member and financial data and research materials (along with your perspective buyer’s gut-level of interest) will meet its final destiny. The phrase - normally reserved for our IT departments - “garbage-in, garbage-out”… is definitely applicable at this point.
Stay tuned, as in our subsequent articles, we will explain the merits and methods for evaluating the influence of each of the X-EBITDA-Factors when assessing a particular club’s value – that being, the actual degree (in dollars and cents) to which these variables can influence the club’s sale price; and perhaps even more importantly, explain how a club vendor can “maximize these factors” prior to placing their club on the market.
** Read Part 1 Here **
** Read Part 2 Here **
** Read Part 4 Here **
** Read Part 5 Here **
** Read Part 6 Here **
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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