COVID caused a tennis resurgence.
Will this become a lost opportunity for the tennis facility owners?
By Jim Bates
As a former teaching pro turned mergers & acquisitions advisor it has been frustrating watching the tennis industry over the last decade. We all know the story of “the leaky bucket”, the emergence of pickleball, etc. It seems to be one step forward and two steps back.
COVID brought on a renewed interest in tennis as many facilities that were stagnant and/or losing members and revenue before COVID were suddenly having their best years ever (or at least the best year they had had in a long time).
So, what are these facility owners going to do? Hope they can retain the renewed interest in tennis and ride the wave? Or, should they think about selling their business now?
This has all the hallmarks of another lost opportunity for the tennis industry. Quite often over the past few years, I’ve had conversations with tennis facilities owners about selling their business. But, the numbers were down. Revenue and membership were down. In many cases, the facility was barely above break-even. Now things are going well. Membership is making a comeback. Programs are filling up. So, I’ve reached out and urged them to consider doing some pre-transaction planning and get the opportunity out on the market.
Why would I sell if things are going well?
The answer lies in a strategic/exit planning philosophy designed to maximize business value. When is the best time to sell your business? The answer: When the business is in a growth stage, not when it has plateaued.
Think about it. What makes a business attractive is its growth potential. A business value is not just based on revenue and profitability for the current time period, but on the expected future cash flows over time. Buyers are interested in and reward growth, not plateaus. If a buyer foresees slower growth or a stagnant business, the multiple offered on future earnings is lower than a business with higher growth potential. So, while it’s tempting to ride the wave as long as possible, it is not a good exit strategy, especially if you are trying to maximize value.
Furthermore, where are our industry leaders? Yes, the people that are the guardians of the game and are charged with growing this sport we all love. Shouldn’t they recognize an opportunity for the current generation of owners (many of whom are older) to pass the baton to the next generation of ownership to steer the industry into the future? If we want to maintain or grow the game, we need the number of tennis facilities to stay the same or increase, correct? Or, will the number of facilities shrink as the current owners end up closing the doors once they ride out the current wave? It’s not so simple as inflation, real estate appreciation, labor shortages, and other variables makes obtaining financing to buy a business very difficult. What are the USTA and other leadership organizations doing to help? Is there a way to put together a fund to help next-generation owners with financing? Is there access to management tools? Or, assistance filling up programming and growing membership? That is a conversation for another article.
In the meantime, there are solutions. Some private equity groups will look at financing the real estate piece. A buy/sell agreement with key employees for a buy-out over time, or a lease with an option to buy might be an alternative. But owners need to recognize that in today’s market (if they ever want to exit their business) they will have to accept some deal structure on the back-end. What does that mean? It means the days of selling your business and walking away with all cash at closing are over. If you want to exit your business, it’s going to take time and planning; and, you will most likely be involved post-closing for at least a couple of years whether that is financially, managerially, or both.
For those in the industry looking for great opportunities, Sports Club Advisors has two fantastic deals on the market. We can also help with obtaining financing. Here are links to two great opportunities on the market now:
We also have more deals in the planning phase at the moment, please join our mailing list: SCA Tennis Mailing List to receive notifications for new deals when they hit the market.
~ Jim Bates is a Partner at Sports Club Advisors. He is a former tennis professional, the co-author of “Business Valuation for Dummies”, and a seasoned mergers & acquisitions professional.
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