🍟 4/14/2022 – Buy a Franchise Or Acquire One?

MEET A ZEE

Zac Pennington: Anytime Fitness

This week’s Meet a Zee  features Zac Pennington, who owns 8 Anytime Fitness franchises, and is constantly on the lookout to expand. 

I was excited to have Zac on because unlike previous guests, the large majority of his franchise locations have come via acquisition! Here’s my top 3 learnings from our conversation:

1. Buy vs Build

The first Anytime Fitness Zac opened was a new-build, meaning he had to construct it from the ground-up. It ran him about ~$650,000 to do this.

He then acquired a location after that for ~$250,000, and was able to make 100% of his cost back in just 18 months (he goes into detail how in the podcast).

After doing this, the light bulbs were going off that acquisitions offered a better investment : return ratio, and so he immediately looked to keep acquiring locations.

2. Arbitrage with New Owners

I was ultra-curious as to how Zac was confident he could turn around all the struggling locations he was acquiring. 

What he described was effectively a cultural arbitrage within the Anytime Fitness system. The gym model was formerly based on a convenient, open 24 hours/day offering.

Zac says things have shifted, as exercise classes, personal trainers, and access to workouts via tech are now the standard offering in the fitness world.

What that’s done is leave certain legacy Anytime Fitness owners struggle to transition to this new era of the brand, and Zac is there to take the business off their hands!

3. Creative Freedom

Part of the strategy has involved increasing membership costs and adding fees:

  • Doubled membership from $28/month to $54/month
  • Added a security activation fee of $99, and a 2x/year club enhancement fee for $35

These strategic business decisions were done entirely at the franchisee level, meaning Anytime Fitness corporate gives franchisees the freedom to test pricing decisions like this (they do have a mandated minimum membership requirement however).

I call this out because many often think every single aspect of the business is controlled by the franchisor. While for some franchises that may be the case, it’s not the case for all!

To listen to our conversation in full, click here!

FRANCHISE OF THE DAY

Murphy Business Group

Fast Facts

Background

  • Founded in 1994, franchising since 2006
  • Based in Florida; 131 outlets open at the end of 2021
  • Business brokerages, business valuations, franchise sales

Fees + Investment

  • Royalty: 10%
  • Brand Fund: Not applicable 
  • Franchise Fee: $40,000 – $47,500
  • Initial Investment: $16,645 – $115,925

Financial Performance

  • The below table contains financial performance data on 102 franchisees that operated 118 units for the full year 2021

Note: Gross profits means all revenue derived from operating the Murphy Business, less the 10% royalty paid to them

The Wolf’s Take 🍟

This is an untraditional franchise compared to what I usually cover. Murphy Business Group is a network of business brokers that help other business owners, both independent and franchised, sell their business to a new buyer.

In exchange for facilitating the transaction, the broker receives a commission based on the total sale price for the business (anywhere from 6%-15%).

I chose this franchise in particular because I made a friend on Twitter who works under a franchisee and seems happy, but also because of what is coming in the next decade…

The Greatest Wealth Transfer

It’s estimated that over the next 20-25 years, ~$70 trillion dollars will be transferred from baby boomers to millennials. 

Of that $70 trillion, roughly $10 million of value is sitting in small-medium sized business currently owned by baby boomers.

The best part? 65%-75% of those business are expected to be sold to unrelated third parties by 2028.

What this means is there’s a rush of owners that will be flooding the market, looking to sell their business for the first time ever. News flash: they’re going to need help!

If you have an interest in commission based sales that includes some financial due diligence on behalf of clients, this could be an interesting franchise to take a look at (and the timing has never been better!). 

Resources

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