07 Dec The Great HALO Reboot 2021, We Eagerly Await Your Arrival
As 2020 finally winds down to its merciless end, I find it exceedingly difficult to express how utterly destructive this year has been for our bricks and mortar HALO players and for us, as Strategic & Financial Advisors. Morphing into a Certified Entrepreneurial Therapist role, starting in April 2020, was not what we had in the cards. While we are humbled & grateful for the trust you have had in sharing the true picture/financial/psychological stress you have endured, we are hoping we can all move into the REBOOT for a brighter 2021 and be a trusted source for your future growth plans instead!
It’s more-than-cliché to write something as trite as “look on the brighter side.” Thousands of big box and boutique facilities have gone out of business . . . some making a graceful exit (as I’ve alluded to in past webinars) and other brands, formerly thought untouchable, find themselves in trouble. Any way you slice it . . . it has been ugly as landlords have shown their true colors and our “flexible debt providers” to the sector (who initially exhibited the proper level of empathy at the uncontrollable nature of the pandemic) now have the gloves off. We continue to be up against what I call the Star Wars Compactor Box. (Landlords and debt providers squeezing us from the top and bottom, while member counts and government restrictions come in from the sides.) I’ve touched on this in a recent IHRSA article.
Suffice to say, it’s been a massive wakeup call. Many of the larger big box chains have always, (basic rules of Finance 101 notwithstanding,) been way over-levered, and they’ve now paid the price . . . and will continue to do so until things get back on firmer ground. Boutiques are no different. Those who threw modalities together for novelty sake have (or will) continue to close their doors. Those who have managed to hold on are now forced to much more closely examine the unit economics of their chosen model and proceed accordingly. Valuations will reset to high single digit multiples for strong companies, but don’t expect double-digit EBITDA multiples or 10x revenue if you are a SaaS or tech company. Be realistic and be rational. Put yourself in the buyer or investor’s shoes given that what just happened in the rear-view mirror . . . Objects Are Closer Than They Appear. After these high profile bankruptcies and wipe outs, imagine you worked in finance. Then think about appearing in front of your firm’s Investment Committee in 2021 and putting your career on the line trying to get them to buy a multi-unit health & fitness chain.
Also, better management of finances must prevail. Companies wanting to expand simply cannot (nor should they have ever) allowed themselves to become too heavily levered. Perhaps most importantly, our industry has (for a variety of reasons) let ourselves slide into the “zero down” race-to-the-bottom pricing model, and that must be reversed immediately. There’s no better time to do it, but we must do it together. Unless you’re an HVLP model that has always had prices at the bottom rung of the ladder, you need to strongly consider raising your prices back to where they used to be. People are not value shopping now when it comes to their health and immune systems. If you’re uncomfortable even thinking about that? Fine, but stop discounting! Our portfolio company Promotion Vault, which is in over 3,000 clubs, bases their entire model on this—and they have hundreds of case studies to show that what they do works exceedingly well.
Among the many things COVID has taught the country (although we’ve always known it as insiders) is that fitness facilities are essential. They’re not optional. They were always essential, but now? Maybe . . . just maybe . . . with the increased lens on our industry politically, Washington will start paying more serious attention. It’s been clear for a while that we need a much stronger presence in DC, but that is another post entirely.
Despite all of this, I’m bullish on not only the return, but the thriving of our industry in 2021. As discussed above, ZOOM (and other) forms of online workouts, apps, and streaming services are here to stay. While the first two months of sheltering at home may have been a welcome respite for many (myself included) as we moved into months three and beyond, the novelty quickly wore off, regardless of how good the content was and how professionally it was filmed. Data has clearly shown that traffic is coming back. We all know quarantine fatigue is real, .and it will only get worse if there’s a second round of shut downs. If that happens, it will serve to make the return that much more powerful in 2021. Humans are face-to-face, social animals . . . period.
Your digital presence needs to be spot on. Don’t abandon it in 2021 . . . integrate it into the business model. View your digital (or your members’ digital at home as additive. Hey, we are in the business of helping humans achieve the results they need to live a happier, healthier lifestyle. Instead of competing against a Peloton, find out if your member bought one and say, ”3 days of personal training, 1 GroupX class and do your Peloton 2 days a week.” (That is the new protocol and DON’T FIGHT technology because . . . if you fight it, you’ll lose.)
MY TAKEAWAYS FROM COVID
The Integrity Square team is as excited as I am about next year. We have a new website and a full calendar for 100+ new HALO Talks podcasts in 2021. You’ll also be hearing from us monthly as we increase our Education Series at HALO Academy. As of this writing, we’ve certified 60 HALO Executives from all segments of the HALO Sector with titles ranging from Entrepreneur to CEO in our HALO 101 Cohort. Launching in January is HALO 102, please consider adding our series to your continuing education initiatives to further educate your team, offer scholarships to your VIP clients on the vendor/club relationship (instead of steaks & red wine).
Back in the day, I was a Guest Entrepreneurial Finance Professor at Fordham University and loved it. David Ganulin and I take tremendous pride in facilitating these conversations/classes to help people level up their knowledge of the HALO sector and as a Finance primer. I hope you will consider making the Academy part of your 2021 initiatives.
We made it this far. Brace yourself for another 90 days of pain and discomfort. You are a leader, you care about others, you have resilience. Raise your hand if you need any help getting through to April 1, 2021. We wish all of you a happy, healthy end to 2020 and a prosperous, fun, fresh re-start in 2021.
P.S. If you’d like to learn more about the HALO Academy or be considered for a HALO Talks, reach out to David Ganulin. If you’d like to chat about our M & A, consulting, or investment banking services, shoot me an email.
Pete is the Founder, Managing Partner and Chief Dream Architect at Integrity Square (“ISQ”), an early-stage growth equity investor and the leading boutique financial advisory firm serving the Health, Active Lifestyle & Outdoors (“HALO™”) sector.Since founding ISQ in 2010, the firm has played an active advisory role in over 60 mergers & acquisition, private placement and advisory assignments across North America, Europe and Asia. He and his team have also invested in (or serve on the board of) the passionate entrepreneurs at Switch Playground, HigherDOSE, XTEND, Greco Fitness, Promotion Vault, Y7 Studio, and The Athlete Book. Prior to founding ISQ, Pete was Head of the Active Lifestyle & Wellness Group at Sagent Advisors from 2003-2010. And from 2000-2003, Pete was a co-founder of FitnessInsite, a SasS sales management platform with over 1,500 clients (based in Arizona) At FitnessInsite, Pete invested his personal capital, leveraged his credit cards and learned what it takes to successfully manage a small business.Pete built his business and financial acumen on top of the foundation laid at three critical positions early in his career: Senior Associate at Brockway Moran & Partners, the equity group which owned Gold’s Gym International, Inc., worked as an Associate at Donaldson, Lufkin & Jenrette and an Analyst at Chase Securities.
Pete saw a need for a deeper and more useful level of education in the HALO sector. In response, he leveraged his network to start the HALO Talks podcast. Now with over 200 completed interviews and over 25,000 downloads, HALO Talks has become a “must listen” for anyone working in or investing in the HALO Sector.
Pete graduated from Emory University (BBA, 1994) and received his MBA from Harvard Business School. (1999) While at HBS, he co-founded IRON PLANET, the leading B2B auction site for used heavy equipment, which was sold to Ritchie Bros for $758 million.
His hobbies include: Football, basketball, tennis, podcasting, amateur ventriloquist, pro bono DJ and fitness enthusiast. (Trying NOT to become a “COVID-induced” restructuring banker! . . . #notfun.)
(Notable Stats: Wingspan 76”, 33 yard dash at 4.3 seconds.)