What is Your Club Worth? Part 4
By: Mike McPhee – 4th of 6 in this Series
In the previous article, we introduced the acronym T-EBITDA-Q (Times EBITDA Quotient). This is the mathematical tool we use to appraise a particular club’s value, by applying it to the standard “6 Times EBITDA” benchmark - which is the maximum an club could expect to receive – assuming it’s “running 100% (or close to) on all 8 cylinders”. And as indicated below, these “8 cylinders” represent “8 key industry benchmarks” or quotients that cover a plethora of factors and/or variables that influence (for better or worse) the value of a club.
In this, and our final two submissions of this series, we will explain not only the merit of considering such factors when assessing a particular club’s value, how we assess these factors and apply a grading mark for each, and most importantly, the actual degree (in dollars and cents) to which they influence the club’s asking sale price.
These 8 key T-EBITDA-Q Factors are:
1. Location & Local Market Conditions (Weight 15%)
2. Physical Plant Condition (Weight 15%)
3. Quality of Assets/Chattels Onsite (Weight 15%)
4. PAP Revenue vs. PIF Revenue (Weight 15%)
5. Avg. EBITDA & Profit Margins over last 3 Fiscal Yrs. & Trending Direction (Weight 15%)
6. Current Membership Rates & Number of Members per Sq. Ft. (Weight 10%)
7. Current Membership Contract Terms (Ease of Transferability & Flexibility of Commitments for New Operators) (Weight 10%)
8. Ancillary Revenues as a % of Gross Revenues (Weight 5%)
In terms of grading each of the factors/categories above, we use the following scorecard.
A= 85% to 100%; B = 70 to 84%; C = 60% to 69%; D = 50% to 59%; E = 25% – 49%; F < 25%
In terms of an over-all grade, an “A” would justify the club owner(s) asking for 6 x EBITDA; an over-all score “B” = 5 times EBTDA; and “C” = 4X; etc. etc. Keeping in mind that this does not mean, as mentioned in our first article, that a club with no EBITDA (ie breaks-even) is worth nothing – but it does require an entirely different value-assessment process that weighs the club’s assets, location and potential much more substantially.
In our next article, we will explain how we asses (and weight) each category, and apply its final grade.
** Read Part 1 Here **
** Read Part 2 Here **
** Read Part 3 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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