Crescent Acquisition Corp. (CRSA) filed an 8-K on Wednesday morning announcing they entered into a Definitive Agreement with F45 Training Holdings Inc. The fitness studio was founded in Australia in 2013, and has since expanded to 1,240 studios across 53 countries. The transaction values F45 at $845M in enterprise value or 11.9x 2021 EBITDA. Details below.

• $75M cash to F45 balance sheet, $20M of that to pay down revolver
  • $50M FPA from sponsor
  • $204M of Crescent’s $304 cash (no redemptions) going to co-founder payout (no longer with company)
• EBITDA forecast assumes return to normal growth rate
  • Grew 48% in 2019, 2021 estimates put the two-year CAGR at 51%
  • F45 says many markets already seeing weekly visits eclipse 2019 levels
• Attractive franchisee economics driving growth projections
  • Less sq. ft. than traditional gyms, less start-up costs, and higher ROI for franchisees
  • Average franchise takes 6 months and 75 members to break even
• Balanced revenue segments between Franchise and Equipment & Merchandise
  • Franchise revenue is higher margin segment
• Management will be entitled to earn-out payments of 5M Class-B shares and 5M Class-C shares
  • Contingent upon share performance of the combined company over a five-year period, convertible to Class-A common stock
• Transaction expected to close by end of third quarter

Quick Takes: The transaction is a bet on a return to “normal” given it assumes a continued rebound in fitness studio utilization and pre-covid new franchise opening rates. However, most of the presentation is based on pre-Covid figures.  To complicate matters, we don’t really know when the world will return to normal, but there is also this looming cloud of second-wave Covid infections or even continued first waves. And while F45 has pivoted to live-streaming classes as a response to the pandemic, revenue figures have not been provided or at what prices they are charging for online versus in-studio (or if there’s no difference). Additionally, $204 million is being paid to a seller who is no longer with the company, which is a lot of cash.  Nevertheless, the F45 model is unique in that its efficient studio design allows the platform to leverage technology to provide a scale-able franchise model. The company also promises to never repeat a fitness class routine and has every gym host the same routine together. The idea there is you can maintain a consistent experience between gyms and not worry about having to repeat a class you already took at a different gym.  However, there are still a lot of question marks around this transaction.  This is day-one of their announcement, so perhaps more information will be forthcoming.

Valuation:

• The transaction comes at 11.9x 2021 EBITDA, or 12.6x pre-Covid 2020 EBITDA estimates
• 2021 valuation is 30-50% below peers, but most of the peers aren’t growing nearly as fast
  • The transaction on a pre-Covid EBITDA figure is more in-line with the comp set
• F45 is valued at $681k per box
  • For comparison, Planet Fitness is valued at over $2.8M per box
• Anticipated leverage will be reduced to zero on a net debt basis
  • From 0.5x pre-transaction based on 2021 EBITDA

Click here for the investor presentation.

ADVISORS

• Credit Suisse is serving as financial and capital markets advisor.
• BofA Securities is serving as capital markets advisor.
• Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal advisor to Crescent.
• Goldman Sachs & Co. LLC and J.P. Morgan are serving as financial advisors.
• Gibson Dunn & Crutcher LLP is serving as legal advisor to F45.