Eric Bormel - Good Deals Are Quiet: Demystifying M&A for Fitness Founders

[00:00:02] Hey friends, welcome to the Future of Fitness, a top-rated fitness and wellness industry podcast for over five years and running. I'm your host, Eric Malzone, and I have the honor of talking to entrepreneurs, innovators, and cutting-edge technology experts within the extremely fast-paced industries of fitness, wellness, and health sciences. If you like the show, we'd love it if you took three minutes of your day to leave us a nice, supportive review wherever you consume your podcasts. If you're interested in staying up to date with the Future of Fitness, go to

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[00:02:30] They've invested a ton into this platform and now they're bringing that European engineering excellence to America. And migration experts have arrived. Check out perfectgym.com where enterprise level sophistication meets operator freedom. Eric Bormel, welcome to the Future of Fitness, my friend. How are we doing? It's good to be here. Doing well. How are you? Yeah, I'm doing great. I'm doing great. It's, you know, you and I have had so many conversations, I feel like, in passing at different events and industry events and caught up.

[00:02:59] You've always kept me informed what's going on in M&A and I thought it was just, it was overdue to have you on the show and talk about mergers and acquisitions and what you do, specifically in some of the major dealings you've had. And more than anything, I would like to demystify the world of M&A for a lot of people in the industry. I think there is kind of a small percentage of people who are within the fitness and wellness and health industry who understand investments, M&A, the differences between them. I've certainly got a crash course on all that through this podcast.

[00:03:25] Like, you know, as an operator and a coach years ago, I had no idea what any of this meant. And just by talking to smart people like you, I've learned a lot. But that's something that I would love to get. And I know there's a lot of activity going on right now. And I think it's a good thing for the industry. And you'll kind of explain why. But maybe before we get into that, talk about your background. You've had some big deals that you've worked on. And you really are, you love this industry, I can tell. It's great to be here. I've always loved our conversations. Long time, sport of the pod. So it's a pleasure to be here. Quick intro, Eric Bormel.

[00:03:55] I'm a managing director at Solomon Partners. We're a boutique, investment bank focused on mergers and acquisitions and capital advisory for businesses typically worth nine figures. So I think $100 million plus. I lead a franchise in consumer health tech, which is all things preventative health and the provision of care technology. So a key piece of that is fitness and wellness tech. We've just had the pleasure of advising some of the most successful entrepreneurs and largest corporations on their most important milestones, which is these key transactions.

[00:04:24] You know, when we were prepping for this, you brought up something that was, it kind of moved me a little bit. You're like, for many people, many founders who, you know, the chances of like, and we all know the numbers, right? Chances of having a successful business are rare, right? But like to found something, go all the way through, have a transaction at the end, right? Get acquired or get bought. Like that transaction that every founder and entrepreneur dreams of. The percentages have to be so low that the odds of success there, right?

[00:04:53] And one of the things you loved about it was like, this is a huge milestone in someone's life. This is like the ultimate in everything they've done, all the work they put, all the risks they've had, right? The challenges, the sleepless nights. Like I keep going about what it takes to be a founder. Like it's hard. Then to see them get to that moment, that must be very, a big thrill for you. It really is. It's, look, my hat is out there for the founders and entrepreneurs who are told no around every corner, only to keep persevering and get to yes.

[00:05:23] They innovate and we sit here in our seats, get to help them with the milestone, if you will, of their career, which is a successful transaction such as this. It's always a pleasure and it's always a lot of fun. Yeah. Well, let's do this. I always find the best way to talk about something is kind of in a case study. So you had a recent large announcement, right? So maybe let's start with that. What was it? Like, how did it all start? At what point did you get involved? How were you involved? Who were the stakeholders?

[00:05:52] Like, walk us through that kind of whole storyline. Yeah. So we get involved in M&A transactions formally when we are engaged to help our clients work through towards a transaction. So we help design a process. We help design the structure of the process, ultimately engage with buyers in order to get to a transaction. You're referencing a deal we probably, we just announced for our client, our client Ruby, when they sold to Zwift just a few weeks ago. So a fantastic outcome for our clients.

[00:06:23] And a great outcome for the category, too. The fitness technology category has not had a ton of wins the last few years. And this was certainly a great outcome for them and an exciting next step for Zwift as well as they continue their growth strategy. Yeah. So how long does something like that take? Like, at what point did you get involved? And then, you know, what is like at every step, what exactly are you doing with them?

[00:06:51] Yeah, it takes longer than most folks think or hope. It is a, look, most M&A processes these days is roughly six months start to finish. We often, however, meet our clients well in advance of such six months. We're building a relationship with them so that when they ultimately select their advisor, whether us or someone else, they have comfort in who they're working with.

[00:07:17] And so we need our clients, in this case, three years in advance to get to know them and help them think through the market, the trends, the dynamics. And then from when we meet them, it's a process to quickly get up to speed. It's then a process to help position the business most effectively. And then from there, engage with buyers and ultimately help support them as they navigate the process through to a closing. And that process through closing, I presume it's just a ton of due diligence. There's a lot of numbers being run.

[00:07:47] Like, what does that entail exactly? Yeah, it's a lot of work for those who try to do it by themselves. It's quite difficult as they always come out the other side and say. So what we do up front is first, we help develop a set of marketing materials for the company. So it's an information memorandum. It's a financial model. It's a KPI data pack.

[00:08:12] It's the script and structure for the management team that they can leverage in their conversations and for us to leverage in our conversations. That process could typically take 60 days or so. Sometimes you can condense it. Sometimes you can extend it. From there, once we start talking with buyers, there's a courtship process that takes place. Sometimes it's advisor-led. Sometimes it's management-led. And so it varies based on situations and circumstances.

[00:08:37] But we will ultimately work with our client to ensure it's the right structure for them in order to get to the outcome they're looking for. And from there, we ask for indications. We ask bidders to put forth their best foot and tell us not just on value where they think the business is worth, but also the softer elements of the M&A process. How they're thinking about management retention. How they're thinking about the broader team.

[00:09:06] How they're thinking about the operations of the business longer term. Is it independent? Is it going to be integrated? What are their go-forward assumptions for the company? And what are we concerned about longer-term and diligence around those assumptions? And all of that goes into an indication that they give us. We'll then take that and navigate that, hopefully with more than one, with our clients.

[00:09:26] And then go back to five and say, hey, we'd like to invite you to the next round of this process to see if it makes sense for you and for us as in our client to press ahead together into a partnership. And then that diligence process, as you mentioned, is quite involved. It starts light. It ends heavy from everything from HR, IT, finance, tax, legal. And the list goes on and on.

[00:09:50] And there are a lot of cooks in the kitchen where we help sit in the middle, help steer the conversations in the right direction and get to a successful. Eric, at what point do you know that a company is a good candidate for being bought? And not just a good candidate, but then also at what point do you think they're actually ready to be bought? How do you qualify those things? Yeah, everyone has a different perception of this. Every founder thinks their business is perfect and without warts.

[00:10:18] So it's our job to come in there and tell the truth and make sure they are aware of what the market may or may not say about their company. And look, we have to be honest with ourselves, with our client about where we think values will lie for that company. There are many reasons to pursue a process. For a lot of founders and entrepreneurs, this is a question of succession planning. It could be a question of finding the next growth avenue and wanting a partner for that growth avenue.

[00:10:46] That partner could be financial, so private equity. It could be strategic in terms of finding someone to invest around and behind. And so we'll help our founders think through whether or not now is the right time for them to consider a process and then ultimately how the market might value their business in such a process. How do you go about the conversation when someone comes to you and you're like, dude, you're not ready? Like, do you think you're ready? Like, how do you maneuver that?

[00:11:15] Yeah, it's honesty. It's telling... Yeah. If someone thinks they're worth a billion dollars and we tell them, hey, we're closer to 100 million, that's a pretty big delta. So, look, we take on assignments that we think will get done. We have a model where we are incentivized for things to get done. So we cannot spend our time and we would not want to waste our clients' time on transactions that we did not think could get done.

[00:11:40] There's been, at least over the last several years, this is more macro around what we're seeing in the market. There's been a pretty big bid-ask spread between where sellers think their businesses are from a value perspective and where buyers are willing to pay. A lot of that is due to the run-up in valuations that we saw in the early 2020s. I think early 2020, early 21, where... That was wild. It felt like everything was getting done at rich valuations.

[00:12:08] And from 22 to 24, we had this environment where sellers still expected those valuations and buyers said, hey, the market has shifted. Interest rate environment is much higher. We are no longer at that same multiple or price. And so I find that we are starting to get back to a point of normalcy in the markets these days.

[00:12:30] And so the conversations with sellers are much more forthright early, and therefore we can get to a decision on going or not going to market. So where is it hot right now in the fitness? Well, you mentioned the 2020s. I mean, that was crazy, right? During the pandemic, anything connected. I think Tonal had a $4.2 billion valuation and Peloton's valuation. We all know that story, right? Like it was just, it was outrageous. Like things were just out of control. People, everyone wanted a piece of this fitness connected wellness, whatever it was.

[00:13:00] And then, like you said, it seems to be maturing, kind of calmed down for a little while. Things came to earth. But in its current, you know, here sitting in 2026, like what do people want a piece of right now within our industry? Is it the brick and mortar? Is it the health club? Is it the boutique? Is it the tech? Is it the like femtech? Like what are you seeing? Yeah, it's a great question. I'd say let's take it in phases. So connected fitness is sort of one piece of the puzzle here, which has gone through perhaps the biggest transformation of them all.

[00:13:28] We've moved from this period of inflated expectations to this trough of disillusionment to use the Gartner-Hard cycle framework. We're now in this plateau of productivity in that category where most of the scale businesses, nearly all of them are profitable and have come around to the other side of the challenges that they faced a few years ago.

[00:13:50] You look at a business like Peloton, they've had to work through an employee count over 8,000 to get to where they are today. They've had 5,000 layoffs in the interim since then. But if you look at the business today, there's 2.6 million connected fitness subscribers plus 500,000 digital subs. So that's a pretty scaled company that's doing 1.6 billion plus of subscription revenue.

[00:14:17] So these businesses are, you know, are they still the pillar of one's health and fitness journey? Maybe, maybe not. You could argue that that title has shifted towards the wearables and the software or operating systems, think iOS, Android or Strava's of the world. But certainly important businesses that have a reason for being and are in a good part of the market still today.

[00:14:40] Where I'd say to answer your question around where the market is trending is the consumer subscription businesses in the technology world. Those businesses today have reached a level of scale and maturation where we are seeing excitement from buyers at owning a piece of the puzzle they don't currently have today.

[00:15:00] So, for example, it's the platforms that have a brand, have the customer's data, and have a unique value proposition that isn't going anywhere in the age of AI. They're not being displaced in the way that their enterprise SaaS companies are. These are consumer subscription businesses where they're leaning on other themes. And so we're seeing a nice shift into that category where it is not as impacted as other categories.

[00:15:29] And there's still a ton of growth to come in there. What's an example of a company in that category that you would point out? Stravas and Zwifts of the world who are winning there for sure. Yeah. So something that's not necessarily hardware related, right? That's all just consumer software, consumer apps, things like that. You are. All right. It's certainly an exciting part of the category. I'd say that connected hardware side, the WHOOPs and Auras are doing quite well themselves.

[00:15:59] Of course, competing with Apples and Samsungs of the world. Both OR and WHOOP had quite strong capital races last year, as we all may have noted, and are seemingly gaining customers by the day. So congratulations to those two businesses on what they've been able to accomplish in the last several years. In the Peloton case, man, I think it's going to be studied in business schools for decades, right? Just like this very unique period of time. And they were such a strong growth company.

[00:16:25] And it's one of those things, I think even you look in sports, like you see someone go to the pinnacle like they did, right? The pinnacle of the industry. They're the golden story. And then everyone wants to kind of tear them down as soon as they heard things start to slip and the valuations or something. But what you just mentioned is such strong numbers, like it's a $1.6 billion in revenue, right?

[00:16:47] And at what point to like, does it matter to investors and buyers that, okay, this may not be a hyper growth company, but it's still a company that's highly profitable. Because I follow Peloton on the quarterly reports, and they're always looking for ways to return to this hyper growth company stage, right? But meanwhile, it's like you look at it and they seem to be doing the right things, right? They're lowering costs. They're becoming more profitable. They're not growing at the rate they were, and they may never again. And that's okay.

[00:17:14] But like, is that like an ideal target for someone in the purchase situation? Because they see the growth, the growth, but they see a ton of profit. It's a good question. We think about this a lot when we're talking with our larger strategic clients and prospects. It's how do we leverage our balance sheets? So the cash that we have and the assets that we have and our cash flow. So as you mentioned, they're doing quite well.

[00:17:42] And there's some analyst estimates that they're going to do 500 million of adjusted EBITDA this year. That's a big number. How do we leverage that to find growth? And whether that's organic, and I'm sure they have some excellent organic initiatives. Just before coming on air, we talked about their latest announcement with Spotify. Or inorganically, how do we think about acquisitions? And this is not specific to Peloton, but this is more writ large around larger strategics.

[00:18:11] This is a fundamental point around why M&A is such an important part of the capital markets. It helps larger strategic companies find their growth and put themselves on the map of, hey, we can continue this playbook and drive our business one of the three. Eric, when you zoom out and when you talk about these level of activities and these deals, like if you're someone who's been in the industry for a while, you're an operator, I'm trying to give a specific example.

[00:18:40] Maybe you're a regional operator of a health club chain. Why are these deals important? What are the signals that they're showing us about our industry? Yeah, it's a great question. It's ultimately thinking about what does M&A drive for the economy? It's really a tool for innovation. As we just talked about with the large cap companies, entrepreneurs innovate.

[00:19:05] And they have tireless years of blood, sweat and tears in order to innovate. Some strategics innovate, and I think many would say they innovate plenty. But certainly they leverage M&A as a means of acquiring innovation. Without this sort of flywheel of the cycle, we would see arguably less talent focused on creating companies and certainly less capital invested into those early concepts.

[00:19:33] That's a key piece of why the M&A flywheel is important to the capitalism society that we have today. It's the incentive, right? The ultimate incentive. Okay. It's certainly an incentive to invest in businesses and drive it beyond, of course, doing well for your family and many other reasons to do well for the community, which are very important. And, you know, as you think about why any specific deal matters, it is a signal.

[00:19:58] It's a signal of what is of interest to the environment, what is of interest to larger strategics and or private equity as they think about where to put their capital to work. And what I love to do with founders and entrepreneurs, and I'm chatting with them often well in advance of any process, is talking to them about these signals. Helping them think about strategically what it is that was enticing to buyers, how that could impact their business today. Give you an example.

[00:20:26] Perhaps, through our conversations, we could figure out a new strategy around HSA, FSA, where they weren't focused on that before. But we tell them, hey, look, private equity is interested in businesses with several means of paying for products and many others such as that. So there's plenty of reasons and signals to stay focused on this and continue to look at it. Yeah. So when you look at the role you guys play, so you guys are the deal makers, correct?

[00:20:55] And then you sell to primarily private equity? Is that most of the buyers that you work with? I'd say the preponderance of the deals that I'm working on are strategic in nature, where we're selling a business to a larger strategic. Okay. Okay, got it. And who are, maybe give me the, this is at the risk of sounding very ignorant and naive of all this, but like who, give me like the wide range of potential buyers that you guys can package up and sell to. You mentioned strategics, we talked about a little bit of private equity, like who are all the options out there?

[00:21:24] Yeah, it varies by company. And so what we'll do with each client is walk them through a pretty long list of folks that we think might be interested in their business. I'd say most of which where we have relationships as well, I can get to the right decision makers at those companies. But it's anything from the MAG-7, so I think the large cap strategics that are driving the S&P 500 all the way down to sort of mid-market companies with sub $1 billion of market cap.

[00:21:52] So it could be really any strategic. And what is a strategic? Humor me on this a little bit. What does that mean exactly? Yeah, a corporation. Not private equity. Okay. All right. So a company that would, you know, take another company under its portfolio or merge them into their current function, that's essentially what we were talking about. Yeah, Zwift's acquiring Ruby, Strava last year acquiring Rana, Hims and Her's acquiring Eucalyptus recently, things along those lines. Yeah, see, told you I learned a lot today.

[00:22:22] So let's walk through the Wahoo deal. Maybe give us like an idea of like, let's recap that, if you don't mind, kind of talk about, you know, how that went. Give us like a frontline, you know, experience of something like that. Yeah, absolutely. This was about three years ago or so at this point. We helped Wahoo Fitness with their majority recapitalization and growth investments.

[00:22:45] Fascinating transaction to be a part of. Wahoo certainly was one of the winners early in COVID through the at-home cycling craze that came about in early 2020 and through early 2021 as well. They, like others in the cycling category, ran into a pretty challenged inventory situation in the channel, not necessarily Wahoo's problem, but the channel's problem.

[00:23:09] So the bike dealers and too much inventory. And so that slowed, it slowed the growth for Wahoo and others in the channel. Given that situation, we got hired to help the company navigate where they were and find an appropriate outcome for the company in order to continue to drive growth and reinvest in growth. And so we got hired, we made several calls, helped package the company appropriately, put management in front of the right buyers.

[00:23:35] And ultimately that led to a successful recapitalization and growth investment in the company that they used to drive continued growth for that business. Right on. Give us like another Lulu. That was another one you worked on, right? Yeah, that's right. We helped. Walk us through that. We helped Lululemon with their strategic alternatives for Mirror that ultimately resulted in the strategic partnership with Peloton a few years ago.

[00:24:04] Obviously, this story has been told, I think, other times, but Lululemon had its challenges after acquiring the company. They ultimately wrote down the goodwill, so I think the IP that they acquired on that acquisition by the time we got involved. And so it was tasked with us to help them navigate what to do with the platform in order to support the customers that were on it today and drive growth for LuluLemon longer term.

[00:24:32] And so we helped them, again, with the process, the structure, the tactics of conversations with buyers, ultimately driving towards a successful global partnership with Peloton, which had great advantages for both companies. A good transaction will keep both buyer and seller, in this case, two partners, quite happy. And that was a good outcome for Peloton to get a great partnership with a trusted Fortune 500 brand, such as Lululemon.

[00:25:01] And similarly, for Lululemon's members to have a great experience with Peloton content. Yeah, interesting. Eric, what's been one of the most interesting and unique transactions you've been a part of? Something that really kind of stuck back and sticks in your memory and you're like, okay, that was a little bit different. Yeah, every deal is different, which is one of the main reasons why I love this job.

[00:25:23] It is so fun to help clients navigate these situations because you run into these thorny problems that, you know, in, I'd say, 95% of situations our clients only has never faced before. We have faced something like it. And so we can help them navigate it and get to a successful resolution of that point. And these are everything from tactical points around negotiating purchase agreements to more soft points around management incentive programs and earnouts, etc.

[00:25:53] So certainly there's a lot to talk about there. I'd say one of the deals that I will never forget is one of the first deals I ever worked on was where Under Armour acquired MatMic Fitness, which got them into the connected fitness category, really coined the term connected fitness when they acquired that business back in 2013.

[00:26:13] And why I remember that one and won't ever forget it is because it was the start of really the start of this category becoming something more mainstream and helped to elevate into the public mind and opportunity sets for businesses writ large in terms of building in consumer subscription and building in fitness technology and getting outcomes that might be out of the ordinary, but ultimately great outcomes for the founders, not to be nervous who were involved.

[00:26:42] Yeah, great. Awesome, man. I love that you love this so much. Like I would, you know, I always think I want to get into this and then I'm like, God, it seems so detail oriented and that's just not the kind of person I am. But it's good that the people like you exist. You love to get into the nitty gritty of everything. When you look at like, so we're at the almost midpoint of 2026 as we record this, which is bananas to me. I can't believe it's gone this fast already. There's so much happening in our industry, right? There's this convergence into healthcare. There's, you know, peptides and longevity and AI, of course,

[00:27:12] which is like the underlining transforming force, basically everything we do right now. What is your, how are you feeling about our industry? And to me, after, you know, 17, 18 years of being in this, I think this is one of the most exciting times to be in this industry. And I've been through some lows. Like, I think we can all agree, like during the pandemic, that was a pretty big low for a lot of people who, you know, maybe not the connected sector, but for a lot of people were like, I don't know if we're going to make it through this. And here we are, right? Right. So gyms are packed, right? There's a lot of interesting transactions going on across the industry.

[00:27:40] So, you know, in your, you know, 10 plus year of experience of doing all this, like where do you think we are right now? What is, what is the prediction for the next few years in this industry? Are we, are we in a golden age? Yeah. I share your point that this is, this is a strong environment for health and wellness technology writ large. The personalization of medicine with virtual care is a key piece around that. The broader trends around the creator economy enabling health and wellness to be top of mind

[00:28:10] and front and center for the consumer, key piece of it. And I'd say there's an administration is pushing the utilization of wearables. That's new. That's exciting for the category. There's, there's so many reasons to be excited about where we are in health and wellness that I would like to say this is the start of something much greater. And if you are, if you're a founder, right, how would you, what's the advice you have for them to start positioning themselves really well over the next three to five years? Yeah. Look, stay, stay focused on what's true to you.

[00:28:40] Certainly it is, it is easy to kind of look around the corner and say, well, they're doing this great. We should go do that and start chasing fads. It's I'd say tread carefully around chasing fads and instead focus on what you're really good at and deliver it. One of, one of the, the luxuries we have in our seat is we get to talk with incredibly successful entrepreneurs and larger corporations on a regular basis. And we see that firsthand.

[00:29:07] Those that are successful are those that double down and others say no and prove their model worse because they had the belief from day one. And you look at, look at Zwit. It's done a phenomenal job at continuing to, to grow their business despite all the noise of the post COVID overhead. And so I commend those who are heads down and growing their business despite all the noise. And what's your take right now on artificial intelligence, right? Some people are trying to think what camp I'm in. It's transformative.

[00:29:37] Is it, is it truly going to change everything we do? Is it's, it's just the, the rate of advancement seems to be outrageous, but we've seen hype cycles on technologies so many times, right? Where people are like, this is it. This is going to change everything. Our lives are going to be completely different in five years. Like this is the end of it all. Or it's, you know, utopia, right? So when you look at artificial intelligence, you know, across, you know, maybe we can talk about specific to our industry because there's so many different applications. I don't even know how to describe it anymore. It's just, it's just in everything. It's an ingredient.

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[00:30:58] Members feel more confident and motivated. Trainers have better tools to support people. Operators see stronger retention and growth. And employers benefit from healthier, more engaged teams. This isn't innovation for show. It's progress you can see, measure, and repeat. To learn more, please visit eGym.com. That we have. So, you know, what is your kind of personal and professional take on artificial intelligence in relation to our industry?

[00:31:28] Yeah, it's certainly changing the game and changing the world. I'd like to take this macro for a second and talk about how it's impacting the economy and what we're seeing from our seat on the finance side. It's utterly astounding. I saw a stat recently that said the top five hyperscalers in AI will spend over $1 trillion in capital expenditures next year. $1 trillion.

[00:31:54] That is over 3% of our economy's gross domestic product. So if this is... Someone just take a minute and write out $1 trillion on a piece of paper and get an idea of how big that number is. So if this is not real and that spend goes away, boy, are we in trouble. In the same stat, it said that our GDP, the GDP from AI is growing 30%. Everything else is flat.

[00:32:23] And so if you think about what happens if this goes away, that's a problem. Think about what this means for our economy. I think this is a key data point as to why we're seeing this really first in history dispersion of where the CEOs think the business world's going versus where consumer sentiment is. It's not to get too nuanced and become a data walker. Yeah, explain that. Yeah, explain that.

[00:32:49] One of the core understandings of our economy is that when consumers are happy, businesses are generally going to do well. When consumers are unhappy, businesses will generally do poorly. And so because of that, two FedTrack data points are consumer sentiment and CEO confidence. In general, those have moved in sync for the last couple of decades. Consumers are unhappy, CEOs aren't happy, etc. However, as we see here today in May of 26, we are seeing the highest CEO confidence since early 2021

[00:33:17] and the lowest consumer sentiment since mid-2022. They have moved the other direction because of this point around AI. Interesting. So if I'm hearing this correctly, it's like CEOs and executives, and I can actually, it makes a ton of sense because, you know, I listen to a lot of podcasts, I read a lot of news, talks to a lot of people about AI. They're like, we're booming, right? CEOs are like, this is the rocket ship we've never seen before. We're going to hit astronomical projections and revenue numbers. While consumers are like, I don't think I like this at all.

[00:33:47] Like, I mean, I can see why. Like, here's an example. My wife has been, she's been doing operations for a large internet advertising company for a long time. We're like, yeah, we got two years until she's basically, the job's no longer viable, right? So we're seeing like one sector and everyone who's super optimistic about AI tends to be involved in AI, right? And then everyone else is like, I don't think I like this. And, you know, we see people losing jobs. You know, everyone says, well, it's going to create more jobs. I haven't seen a viable path for that yet.

[00:34:16] I'm sure it may emerge. So is that kind of the base sentiment is like, we don't really like it. But a lot of people, some people are going to make a ton of money on it. And that is why we're seeing the public markets chase this trend at an all-time high these days. That's why we're seeing the deal environment chase these trends. Frequent conversations start, how do we acquire talent, capabilities, access to this type of infrastructure, capabilities in this category, by the way.

[00:34:40] That is why we're ourselves innovating in our business to make sure we are AI first in terms of how we think about positioning businesses, how we think about our go-to-market, et cetera. So, absolutely, it's permeating society. And so, yes, folks need to be aware of it and mindful of it as they think about their businesses, you know, in local economies. So that's a macro. Let's zone in on like our specific industry. Like where are you seeing the transformation? So, yeah, it's a great question. So a few places that we're seeing it.

[00:35:09] We talked a little bit earlier ago about the personalization of healthcare. Certainly we're seeing it there around virtual care. It's personalized experiences. It's down to personalized data, how the consumer now owns their data. And you can take that data, for example, and they're using a function help. They take that data, throw it in the claw to learn even more about themselves. We're seeing that left, right, and center. So that is a key area where AI is driving much of that trend.

[00:35:37] I'd also say around the wearable side of it. Each of the wearables businesses that we've seen are in some way leveraging AI to help tell more stories for their consumers. It's no longer about giving the data to the consumer and let them do what they want with it. It's how can we help you understand this data better in order to make sure you are leveraging it in the most impactful way for you in your journey.

[00:36:02] And then I think the open question is going to be around fitness centers and where AI ultimately can improve the fitness journey. And if it needs to in some parts of that, parts of the floor wall retail economy. Certainly at check-in and sort of administrative tasks, can it help reduce the burden on those who are on the floor, et cetera? I would think yes. Can it help personal trainers with their planning? I would think yes.

[00:36:29] Can it help nutritionists, for example, with their planning? I would think yes. So there's plenty of opportunity for individual gym owners or individual business owners to think about where in their business they can leverage AI in a thoughtful way to drive increased engagement and to drive, ultimately, improve retention. Yeah. I mean, it's a big question.

[00:36:54] You see a lot of people, I mean, a year ago or more, when we talked about AI, it was all about retention. Like, how do we identify retention risks, right? Then we send them a text message at an appropriate time or whatever it may be. It was like that was kind of the scope. This year, I hear a lot more about, well, how do we improve the member experience, right? So how do we get them so, you know, get them on this journey guided maybe perhaps or so that that retention risk isn't a problem. Like, we're not hitting them at the very end where we might lose them.

[00:37:24] We're actually involved from the beginning in controlling this member experience and helping them guide them. And there's a lot of, you know, e-gym and their genius AI and a lot of different things are coming in. Zing, you name it, a lot of these AI level coaches are coming in. And I always just wonder, I'm like, technology is so pervasive in people's lives. Do people just want to go to the gym and work out, you know, and just be, you know, because we have, it's constantly, I use it all day, right? And I know I'm not alone. So I don't know. I think that shift in member experience is something I've been noticing.

[00:37:52] Is that something that you've seen from your purview? Yeah, it is. And that is what you just mentioned is why the branded consumer names are the ones that have less risk than the enterprise SaaS names in AI. So from my lens, from the M&A lens, we're certainly seeing that and hearing that from industry operators as well. Yeah. Well, I mean, one of the reasons I am optimistic about this industry compared to other ones is that, you know, you can't AI your way to fitness.

[00:38:19] Like, and that's, you know, Dan Wymera from Pushpress said that on this podcast about a year ago. I'm like, it was brilliant. You can't, you can't just, you have to do, you have to show up, you have to work out, you have to eat, right? Like AI is not, it can guide you along the way. So our industry seems to be rather insulated in many ways from the threats of AI as well. I mean, is that something you would agree with or am I missing something, a chink in our armor? I generally agree that you can't AI your way to fitness.

[00:38:46] I'd say we are getting closer with personalized dosages and the advent of genetic medicine from genetics. So it's, we're certainly getting closer, but we're not there quite yet. Getting back to kind of like the founder education on this, which is really important to me, like what drives valuations beyond just revenue? Like what, what, what can boost a valuation? Yeah. Let's talk about how to, how to think about valuation here.

[00:39:12] There's sort of M&A 101 school of thought here, but there's two core, two core elements to it. There's the intrinsic value of a business and there's an extrinsic value of business. Intrinsic value is how much, how much cashflow am I generating? And how much is that worth to someone today? So discount that cashflow back to today at some appropriate discount back. That's one way that buyers will think about value. The other way is extrinsic.

[00:39:39] And this is where maybe your revenue figure does ultimately drive your value, where you're getting a multiple of, of X, where that X might be a multiple of your revenue or a multiple of your, of your cashflow. Or we use the term, we put that to represent cashflow often. And so those two extrinsic valuation methods are often tied to what we have seen recently in the markets. It could be recent transactions. So we saw, Hey, this transaction was priced at 10 times EBITDA.

[00:40:08] So therefore you're a similar business, maybe you're priced at 10 times EBITDA. Or we can say, Hey, look, public markets, you can go follow anyone from Peloton to TechnoJam to Garmin and say they're trading at X multiple of their revenue or EBITDA. And therefore that might be what your business is worth as well. Something around that level. And we would look at a broader benchmark of businesses. Yeah. Cool. Interesting.

[00:40:32] And you know, when you're talking to, or if you have advice for founders and like Rick Mayo had him on this podcast from Alley Porcer training. They just went through a major transaction a few months ago earlier this year. And he talks a lot about it, but how do you select the right buyer? Like how is that strategized? Yeah. It's such an important point is it's talked about more upfront than I think most folks realize. Not all sellers are value maximizing.

[00:40:59] Sometimes when you sell your house, you just, you wanted to go to another family to live in it and enjoy it. And so it's the same thing in the NM&A process. You might say, Hey, it's important to me that the brand lives on. You might say, it's important to me that my employees are excited about who comes in and owns this company. You might say, it's important to me that I stick around and I have a role to place here longer term.

[00:41:23] And so each one of those will ultimately drive how we think about designing the right process and structure for a buyer. Sorry, for a seller. It's more important than anything. So you might go to private equity and say, Hey, we are representing a client who wants to stick around and wants to reinvest in this business. And if that's the case, well, certainly private equity will be excited about that because they often ask for that.

[00:41:49] And that is one way to think about the outside factors that drive the ultimate successful outcome. Now that's just about value and structure. You asked the question about how to select the buyer. That comes down to trust and relationship. And I'd say we can be helpful in that process as well as the advisor just because we interface with these folks more than once. So we know how they act.

[00:42:14] We know how they might bluff, for example, in certain situations and how they might deal with delicate situations around certain issues. We know what's important to them and what's not important to them and we can help our clients understand that. But then it's trust. It comes down to trust. And if you're getting into bed with someone, you have to be excited about that. You have to know they're going to have your back when times are tough. You have to know that they want the same things you want.

[00:42:41] If they are in it for a quick buck and you're not, that's the wrong match. I've seen, and Rick and I talked about this too, like the private equity or the transactions that go wrong get a lot of press, right? Like you hear about them a lot. But the ones that go right are very quiet in a good way, right? Like they're just chugging along. It's working and they're building and they're growing. And, you know, I think that scares some people at times because all you hear is you hear a lot of these bad stories, right? It's just the press loves it.

[00:43:09] The last question for Eric is what do you need help with, man? As an industry, as people are listening to this, you know, what's something that a challenge you're facing or something that you would need help with? Yeah, look, I'm a big believer in this category. I'm excited to continue to support entrepreneurs and founders and investors as they navigate this category and look for attractive outcomes here. So I'm always looking to meet interesting people who are building interesting things. And if that could be helpful in your journey, you would welcome to have that conversation.

[00:43:37] Whether you're thinking about an exit in your term or you're looking at an acquisition or you just want to chat industry and market intel. Happy to find time and help you however I can. Yeah, and you are very accessible and I appreciate that. Hence, you know, you're sitting on the podcast here. You know, if people look him up on LinkedIn, find his profile photo. If you've seen him walking around events because he's there often cruising around, grab him and introduce yourself because, you know, you're always very friendly.

[00:44:03] So, Eric, if people want to follow or get a hold of you or whatever, where would you like them to be? Yeah, you can always email me, eric.bormel at solomonpartners.com. You can find me on LinkedIn as well. Cool. Right on, man. Well, Eric, thanks for spending your Friday morning. This has been super educational for me and I think a lot of people will learn a good amount from it. I'm guessing some people are going to reach out to you pretty soon too. So, yeah. Thanks, man. Really appreciate it. Ladies and gentlemen, Eric Bormel. Thank you. Hey, wait, don't leave yet.

[00:44:29] This is your host, Eric Malzone, and I hope you enjoyed this episode of Future of Fitness. If you did, I'm going to ask you to do three simple things. It takes under five minutes and it goes such a long way. We really appreciate it. Number one, please subscribe to our show wherever you listen to it. iTunes, Spotify, CastBox, whatever it may be. Number two, please leave us a favorable review. Number three, share. Put it on social media, talk about it to your friends, send it in a text message, whatever it may be.

[00:44:59] Please share this episode because we put a lot of work into it and we want to make sure that as many people are getting value out of it as possible. Lastly, if you'd like to learn more or get in touch with me, simply go to thefutureoffitness.co. You can subscribe to our newsletter there or you can simply get in touch with me as I love to hear from our listeners. So thank you so much. This is Eric Malzone and this is the Future of Fitness. Have a great day. We're going to work. Thank you.