Latest / The Buyout Show with Fexingo: Private Equity, Roll-Ups, and Business Acquisitions / How Private Equity Is Buying Up Gyms and Fitness Centers
Transcript
- Lucas: So Luna, the gym down the street from you — the one with the neon sign and the 24-hour access — have you noticed anything different about it lately? Luna: You mean besides the new smoothie bar and the membership rates going up? Yeah, I've noticed. Is that why you're bringing it up? Lucas: That's exactly why. Because that gym, and probably a thousand others like it, are being quietly bought up by private equity firms. Today we're going to talk about how PE is rolling up gyms and fitness centers — and what it means for the industry and for anyone who works out. Luna: I've heard about PE buying vet clinics and car washes, but gyms feel different. People have a personal connection to their gym. Lucas: Right, and that's part of the appeal for the buyers. Gyms generate steady, recurring membership revenue. And unlike a lot of businesses, that revenue keeps flowing whether the member shows up or not. The business model is almost like a subscription — and you know how private equity loves recurring revenue. Luna: So they're not just buying buildings and equipment. They're buying a monthly check from millions of members. Lucas: Exactly. And the roll-up playbook is the same one they've used in other fragmented industries. You find a bunch of mom and pop gyms, each with, say, a few thousand members, and you buy them at a reasonable multiple. Then you combine the back office, negotiate better equipment deals, and push memberships harder. The goal is to build a regional or national chain that's worth more than the sum of its parts. Luna: But aren't gyms local? People don't usually switch gyms just because they're traveling. How do you get economies of scale? Lucas: That's a fair question. The scale doesn't come from members using multiple locations — although some chains do offer reciprocal access. It comes from things like centralized marketing, standardized training programs, and better purchasing power on equipment and insurance. Plus, a bigger footprint makes it easier to negotiate with landlords when you're opening new locations. Luna: So the mom and pop gym that's been in my neighborhood for twenty years — how does a PE firm even find it? Lucas: Usually through brokers or industry networks. A lot of gym owners are in their fifties and sixties, they've been running the place for decades, and they're thinking about retirement. The business might be profitable, but it's not something the kids want to take over. So a PE firm comes in, offers a clean exit, and the owner can retire with a lump sum instead of selling piecemeal. Luna: That sounds like a win for the owner. But what about the members? Do they see any difference? Lucas: Often they do, and not always in a good way. When a PE firm takes over, they typically want to increase revenue. That can mean raising membership fees, adding tiered pricing, pushing personal training packages, and sometimes closing underperforming locations. The equipment might get upgraded, but the atmosphere can change — it becomes more sales-driven. Luna: I've definitely seen that. My gym started pushing a 'premium membership' with extra perks, and the front desk started trying to sell me on it every time I checked in. Lucas: That's the classic play. And it's not just the big chains anymore. Boutique studios — the ones that offer spin classes, Pilates, or CrossFit — are a big target too. Those studios often have super high revenue per member because classes command a premium. But they also have high churn, because people get bored after a few months. Luna: So how does a PE firm deal with that? You can't just slash costs if the product is the experience. Lucas: Right, and this is where the playbook gets interesting. Some firms are bundling multiple boutique brands under one roof. They'll buy a spin studio, a yoga studio, and a Pilates studio in the same area, then create a membership that lets you access all three. That cross-sell is supposed to keep members engaged longer — and it gives the PE firm more pricing power. Luna: That's clever, but it sounds complex. Running one studio is hard enough. Now you're managing three different brands with different instructors and different clients. Lucas: And that's the operational risk. Private equity firms bring capital and financial discipline, but they don't always bring gym expertise. So they often rely on the existing management team to stay on for a few years. But once that team leaves — and they usually do after the earn-out — the firm has to find someone who can run a fitness business. That's not always easy. Luna: I can imagine. There's a big difference between a CFO who's comfortable with a spreadsheet and a general manager who knows how to motivate trainers. Lucas: Exactly. And the financial structure matters too. These deals are often loaded with debt, because the PE firm wants to maximize its return on equity. That means the gym has to generate enough cash flow to pay the interest. If membership dips — say, during an economic downturn — the debt payments don't go away. That's when you see gyms closing suddenly, sometimes without warning. Luna: That's the scary part. People prepay for annual memberships, and then the gym just vanishes. Lucas: It happens. But it's not the whole story. There are PE firms that do this well — they invest in the member experience, keep the instructors happy, and grow thoughtfully. The problem is that when you have a lot of firms chasing the same deals, the multiples get stretched, and the debt gets riskier. Luna: So what's the current state of the market? We're in August 2026 — are gym acquisitions still hot, or is the market cooling off? Lucas: The fitness industry took a hit during the pandemic, but it's rebounded strongly since. Membership numbers are back to pre-pandemic levels and even higher in some segments, especially the premium and boutique categories. That's driven renewed interest from PE. But there are also signs of caution. Interest rates have been higher than a few years ago, which makes leveraged deals more expensive. So you're seeing more equity checks and tighter underwriting. Luna: So it's not a feeding frenzy, but it's still active. Lucas: Right. The deals are still happening, but the buyers are pickier. They want gyms with strong cash flow, loyal membership, and a defensible local position. And they're being more careful about the debt load. Luna: That sounds like a healthy correction. But I still wonder — as a member, how do I know if my gym is about to be bought by a PE firm? Lucas: There's no public announcement for a single gym sale, but there are clues. If the gym suddenly starts pushing long-term contracts, adds new fees, or changes its branding, that's a sign. Also, if the owner is near retirement age, the odds go up. Luna: And if I'm a gym owner hearing this, what should I be doing? Lucas: If you're thinking about selling, the key is to get your books in order and show a clean, recurring revenue stream. PE firms love a gym with high renewal rates and low churn. But also consider whether you want to stay on after the sale — many sellers end up staying for a few years, and that transition can be tough if you're not prepared for it. Luna: So it's not just a financial decision, it's an emotional one too. Lucas: Absolutely. And that's something the best advisers will tell you. A gym is often the owner's baby — they've built it from the ground up. Selling it is like giving up a part of your identity. Luna: Hey, before we go further, I want to mention something that's been on my mind. We've been doing this show for a while, and we've talked about a lot of interesting deals and trends. If you're a listener who's gotten something out of these conversations — maybe you've used an idea at work, or you just enjoy the insight — there's a way to keep the show going strong. It's ad-free, and we'd like to keep it that way. Lucas: Luna's right. We're not asking for much — just a small contribution if you can. It's like a membership fee for the podcast. You can support us at buy me a coffee dot com slash fexingo. It's a simple way to show you appreciate the work we put into this. Luna: And it really helps us keep the lights on. Thanks for considering it. Lucas: So back to the topic — one more angle I want to explore. The rise of the 'hybrid' gym model, where a physical location is combined with an app and digital content. That's a new area that PE is starting to experiment with. Luna: Interesting. So they're not just buying brick and mortar, they're also investing in technology. Lucas: Exactly. A gym with a popular app has a much higher valuation than one without. The app provides another revenue stream, and it keeps members engaged even when they travel. Some PE firms are paying a premium for gyms that have a strong digital presence. Luna: That makes sense. But it also means the barrier to entry is higher for small gyms that can't afford a great app. Lucas: That's the reality. The digital divide is real, and it's another reason why consolidation is happening. Smaller gyms that can't keep up with technology are more likely to sell to a PE firm that can invest in that infrastructure. Luna: So what's the long-term outlook? Are we going to end up with just a few giant fitness chains? Lucas: Probably not in the near term. Gyms are inherently local, and people have strong preferences. But you'll see more regional and national players with a portfolio of brands. The days of the truly independent gym might be numbered, but there's still room for smart operators who focus on service and community. Luna: It's a lot to think about. Next time I'm at the gym, I'm going to be looking at the front desk a little differently. Lucas: That's the smart move. Just keep scanning your card, and you'll be part of the story — whether you like it or not. Luna: Thanks for listening, everyone. We'll talk to you next time.