Valuation Multiples for a Gym or Fitness Center
Businesses in the gym and fitness industry operate fitness and sports facilities. These facilities feature exercise and other forms of physical fitness. This may include weights, cardio, swimming, skating, etc… An industry report on IBIS World notes that there are over 115,000 gyms and fitness centers in the United States. We can expect this number to continue growing over the next several years. However, the gym and fitness industry has seen revenue and profit decline in recent years. This decline is improving, however, it will likely continue in the coming years. These conditions present challenges for those looking to buy or sell a gym. However, success in this industry is still achievable. Whether you are buying, growing, or selling a gym, it is important to understand the value of a gym. This includes learning about valuation multiples for a gym or fitness center.
Valuing a Gym or Fitness Center
If you are looking to buy or sell a gym, it is vital to understand the process of valuing a gym or fitness center. As such, it is important to receive a business valuation for a gym. If you are buying a gym, receiving a business valuation may help you decide on a fair purchase price. Obtaining a gym equipment appraisal may also be part of the process for buying a gym or fitness center. Additionally, you may learn effective negotiation strategies for buying a gym. If you are selling a gym, receiving a business appraisal may help you determine a fair listing price. Overall, business appraisers help you understand how to maximize the value of a gym as part of a business valuation.
There are various valuation approaches to determine the fair market value of a gym or fitness center. A common method is the market approach which uses valuation multiples. In this article, we discuss valuation multiples for a gym and fitness center. Keep in mind, this article is only a guide. To understand which methods and multiples apply to your gym, receive a business valuation. Peak Business Valuation is happy to provide you with a business appraisal for a fitness center. If you have any questions about valuing a gym, reach out to Peak today! Start by scheduling a free consultation with Peak Business Valuation! To learn more, check out Valuing a Fitness Center, Value Drivers for a Fitness Center, and How to Value a Fitness Center or Gym.
Valuation Multiples for a Gym or Fitness Center
The image below displays average market multiples for a gym. Peak Business Valuation often uses market multiples to determine the value of a gym. However, these values are only averages and may not apply to your gym. For multiples that are suitable for a gym you are buying or selling, receive a business valuation. Peak Business Valuation is here to help. We can provide you with a business valuation for a gym. Schedule your free consultation with Peak Business Valuation today!
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
A valuation multiple is a ratio that compares a gym’s value to a financial metric. These metrics can include cash flow, earnings, or sales. For example, the SDE multiple is a popular ratio when valuing a gym. This multiple compares the seller’s discretionary earnings of the gym to its implied value. By analyzing the market multiples of similar gyms that have recently sold, valuation analysts can determine suitable multiples for your gym or fitness center. Then, they are able to provide a range of value.
For instance, a gym has $102,000 in SDE. If it receives a 2.54x SDE multiple. In this case, the business would have an implied value of $259,080. ($102,000 times 2.54x) On the other hand, if it receives a 2.88x multiple, the value of the fitness center would be $293,760. ($102,000 times 2.88x).
Peak Business Valuation is a professional business appraiser. We often work with individuals who are buying, growing, or selling a gym or fitness center. Below, we highlight common market multiples for a gym or fitness center. These multiples represent the range of values that gyms typically transact at. Keep in mind, the range of value may vary since each fitness center is unique. The following sections discuss SDE, EBITDA, and REV multiples for a fitness center or gym. To learn more, receive a business valuation with Peak Business Valuation. Schedule a free consultation today!
SDE Multiples for a Gym or Fitness Center
Average SDE Multiple range: 2.48x – 2.93x
On average, gyms transact between a 2.48x – 2.93x average SDE multiple. To determine an implied value of a gym, apply the multiple to the seller’s discretionary earnings. See the following calculation.
SDE X Multiple = Value of the Business
For example, a gym generates $217,000 in SDE and transacts at a 2.67x multiple. In this instance, the gym’s value is approximately $579,390.
$217,000 X 2.67x = $579,390
Business appraisers often use the Seller’s Discretionary Earnings multiple when valuing a gym or fitness center. When using this multiple, a valuation analyst adds any expenses the new owner may not incur to the gym’s operating profit. Typically, these expenses include fair owner’s compensation, non-recurring or non-related business items, and personal expenses. This process allows the valuation expert to determine the cash flow potential of a gym. Then, they can determine the value of a fitness center you are buying or selling.
EBITDA Multiples for a Fitness Center or Gym
Average EBITDA Multiple range: 3.33x – 4.34x
The average EBITDA multiples for a gym or fitness center range from 3.33x – 4.34x. Apply this multiple to a gym’s EBITDA to derive an implied value of the business. The equation is as follows.
EBITDA X Multiple = Value of the Business
In this example, a fitness center has an EBITDA of $169,000 and transacts at an EBITDA multiple of 3.80x. Using the above metrics, the fitness center is worth about $642,200.
$169,000 X 3.80x = $642,200
EBITDA multiples measure a gym’s return on investment (ROI). A business appraiser may use this multiple because it helps normalize differences. This allows for comparisons to be made between similar gyms. Normalized ratios provide an accurate estimate of the future earnings a buyer can expect from a gym or fitness center
REV Multiples for a Gym or Fitness Center
Average REV Multiple range: 0.65x – 0.97x
According to Peak’s data, gyms sell an average of 0.65x – 0.97x of revenue. Business appraisers at Peak can calculate the implied value of the business by multiplying the amount of revenue or sales a gym makes by the REV multiple. See the following calculation.
Revenue X Multiple = Value of the Business
For example, a gym generates $773,000 in revenue. It then transacts at a 0.82xmultiple. In this case, the gym is worth approximately $633,860.
$773,000 X 0.82x = $633,860
REV multiples measure the total revenue generated by a gym or fitness center. At Peak, business appraisers analyze REV multiples of similar gyms that have recently sold. This helps them determine suitable multiples for your gym. Keep in mind, business appraisers tend to value gyms or fitness centers using cash flow multiples – SDE and EBITDA.
Summary
When valuing a gym or fitness center, business appraisers often use valuation multiples. There are various valuation methods and multiples that a business appraiser may use to value a gym. To understand which market multiples are suitable for your gym, receive a business valuation. During a business valuation, a valuation analyst helps you understand the fair market value of a gym. In addition, you can learn how to maximize the value of a gym whether you are buying, growing, or selling one.
Peak works with many gyms and fitness centers across the country. Whether you are buying, growing, or selling a gym, Peak Business Valuation is happy to help! We are proficient in valuing gyms or fitness centers. This includes using market multiples for a gym or fitness center. Peak Business Valuation also provides gym equipment appraisals. We are happy to answer any questions you may have about the value of a gym or fitness center. Start now by scheduling a free consultation with Peak Business Valuation, the business appraiser, below!
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