F45 Delisting from NYSE: Impacts & What’s Next

Key insights 

• A Staggering Descent in F45’s Valuation: The gravity of F45’s recent decision to delist from the NYSE isn’t just about the plummeting share price. It’s the astonishing free fall of their market capitalisation. Debuting with a valuation of US$1.46 billion at IPO on July 15th, 2021,  the company’s net worth has now plunged to US$12 million. This points not only to the tangible challenges F45 has grappled with but also to the evaporating investor confidence.
• Franchisor-Franchisee Misalignment: Beyond the raw numbers, what I’ve discerned is a rather palpable discord between F45, the franchisor, and its franchisees. Whilst a handful at the top reaped substantial rewards post-IPO, the broader network of franchisees seemed to bear the brunt of misplaced priorities. This balance, or rather the imbalance, between shareholder and stakeholder profits, needs addressing.
• Charting the Path Ahead: As F45 prepares to re-emerge as a private entity, I believe the onus is on its new leadership to anchor the ship. This means a lucid articulation of corporate purpose, a genuine endeavour to mend fences with franchisees, and an unwavering commitment to transparency.

F45 to quit the New York Stock Exchange (NYSE) September 2023

As many Oxygen Consulting readers may already be aware, in recent industry news, the F45 Delisting from NYSE has become a significant point of discussion. This decision by F45, a major player in the fitness studio franchising world, to delist from the New York Stock Exchange has raised many questions and concerns. In this short post, we’ll delve into the reasons behind this move, its implications, and what it might mean for the future of the brand This decision comes after a series of challenges, including a significant drop in share price and non-compliance with the NYSE’s continued listing standards. The company’s shares have plummeted from US$16 at the time of its IPO to now being suspended and valued at just US$0.12 (twelve cents). The business has decided that ‘going dark’ or taking the company private would be the best way forward. This move has sent ripples across the industry and raises pertinent questions about the delicate balance between franchisors and franchisees.

Oxygen Consulting perspective

Ray Algar, a global fitness industry analyst and Oxygen Consulting founder comments: “From my perspective, a successful franchise model is when there is genuine alignment between franchisor and franchisee. Of course, there should be a focus on franchise growth, but equally a passionate focus on investing in the existing franchise network. Many franchisees have literally put their homes at risk to open an F45. I will be expecting the  F45 senior leadership team to take a significant reevaluation of this brand’s primary organisational purpose which seems to have strayed as a public company.”

“We want to be the world’s largest franchisor. We want to sprint past Planet Fitness and be bigger than McDonald’s” is how Adam Gilchrist, the founder and former CEO captured their strategic intent. Ask any F45 franchisee how much they care about beating McDonald’s and how it helps them to better support their members. Also, for context, F45 has around 2,000 studios open and trading according to its website while McDonald’s stands at more than 36,000 so was this ever a realistic and relevant ambition?

Ray Algar continues: “A small number of senior management and ‘celebrities’ have generated enormous financial value from F45 following its IPO but this is not and should not be its corporate purpose.”

Looking forward

Over the next few months, F 45 will be moving forward once again as a private company. The new senior leadership team will have much to do both in terms of stabilising the company and rebuilding trust with all its stakeholders. Chuck Runyon, the CEO of Anytime Fitness had this to say on our recent Linkedin post.

“Successful franchising can be summed up in two words: Profitability & Trust. How profitable are franchisees and how much trust exists between franchisor and franchisee?  Only with both, can you build a long term successful franchise system. In the case of F45, they focused on shareholder profits with no regard for stakeholder profits.”

Some of the strategic priorities for F45’s leadership will therefore be:

• Corporate Purpose Revisited: With a redefined corporate purpose it’s easier to rally both internal teams and franchisees around a common goal. This is the bedrock upon which strategy can be built.
• Re-establishing Trust: Trust, as mentioned earlier, by Chuck Runyon is the foundation of any franchise model. The earlier this is addressed, the easier it will be for F45 to smoothly transition and implement any subsequent strategies.
• Reassessing its Strategic Ambition: Before making any significant decisions or investments, F45 should have a clear vision of its future direction. This clarity will guide all future actions.
• Enhanced Transparency: Parallel to re-establishing trust, it’s vital to maintain clear and transparent communication with new and existing franchisees. This transparency will mitigate any uncertainty and apprehensions franchisees might have about the delisting and future operations.
• Capital Allocation and Investment: Once the revised purpose is clear, F45 can start channeling its resources more efficiently to support the needs of all its franchisees, both new and established.

Timeline of key events for F45 Training Holdings Inc (FXLV)

July 15, 2021: IPO Launch: F45 Training Holdings Inc. goes public on the NYSE at $16 per share, raising $325, before costs. The IPO was backed by notable investors, including celebrity Mark Wahlberg.

May 2022: Business Model Changes: After the company’s Q1 results and conference call, analysts reduce price targets due to significant changes in the business model, including third-party franchise financing agreements.

July 26, 2022: Strategic Update: F45 announces a realignment of its corporate operations to prioritise profitability and cash flow generation. This involves reducing operational expenses, streamlining corporate functions, and laying off approximately 110 employees.

CEO Resignation: Adam J. Gilchrist, the CEO and co-founder, steps down from his roles but remains on the Board as a director. The company agrees to pay him up to $5.8 million in one-time cash payments and other benefits.

Disastrous Financial Outlook: F45 provides a bleak outlook for FY2022, including reduced expectations for new franchises and studios, lower revenue, and adjusted EBITDA forecasts.

Franchisee Funding Issues: The company’s revised guidance assumes that the $250 million of growth capital from two previously announced franchise financing facilities would not be available.

December 8, 2022: Class Action Complaint: A class action complaint is filed against F45, alleging that the company’s board of directors breached their fiduciary duties. The complaint claims that the Registration Statement issued for the July 2021 IPO was misleading regarding the company’s revenue stream and its ability to maintain rapid expansion.

August 14 2023: Shares Plummet: F45 Training Holdings shares collapse to 12 cents after stating its intention to voluntarily delist from the New York Stock Exchange and deregister its common stock. This means the market capitalisation or net worth of the company has collapsed from a high of US$1.46 billion at the time of its IPO to just US$12 million.

September 3, 2023: F45 Training Holdings Inc is due to delist.

I would love to read your thoughts on F45 and their prospects as a private company, once again. What role do ‘celebrity’ influencers play in this story who seem very eager to talk up the business? You can leave a comment on our Linkedin post.

Note

The chart below shows the collapse in F45’s share price since its July 2021 IPO.