One of Australia’s great business success stories, the franchise gym operation F45, is now being forensically examined by US law firms to see if there has been bad business behaviour explaining why the company’s share price and business prospects have tanked.
Since listing on the US stock market, the share price has been smashed by 88%, with the July trading update so bad that the fall in its stock price was 61%.
This gym junkies’ business, once seen as the best-of-breed fitness operation in the world, debuted on the market at US$16. It’s now US$1.82, explaining why lawyers are asking what has happened.
By the way, this business was then valued at US$2.1 billion but now, according to the AFR, is down to US$183.6 million.
The future of F45 was so promising that Hollywood actor Mark Wahlberg invested $450 million into the company in 2019 for 25% of the company. When it listed, Wahlberg made $200 million on his punt on this Aussie business. But that’s when its share price was US$17!
After planning to roll out 1,500 new franchises this year, F45 will instead aim for 350 to 450. Its forecasted revenue has dropped from $275 million to $130 million.
So what happened?
Some say taking the company public was a mistake. Many great private companies fail when the owners who drive a business are replaced by corporate employees.
Clearly, Covid lockdowns that bread emptier CBDs and people working from home would have played havoc with F45 gyms in office precincts. I bet many suburban F45s are doing OK with employees working from home, but the lockdown era did create home gyms in garages and spare rooms.
Also, there’s a big issue with franchising because owners of the overall group make money when they sell new franchises but these can eat into the business of existing franchisees.
Right now, co-founding CEO Adam Gilchrist (not the cricketer) has stepped down as chairman and CEO and has his home at Freshwater on the market for $14 million. The other co-founder, Robbie Deutsche, who sold out of the business in 2020 before it listed, is said to be devastated at what has happened to his once hugely successful business.
This sad story is a lesson for all investors in new businesses, with some of this country’s big investing groups losing out on F45.
The AFR revealed some big losers from this once strong but now unhealthy business: “Sydney-based hedge fund Caledonia invested $100 million in the fitness firm at a share price of $14.95. Meanwhile, Melbourne fund L1 Capital bought 1.1 million shares from major shareholder and actor Mark Wahlberg in April and told investors the 50 per cent fall was a major detractor in July, when its ASX listed fund fell 3.3 per cent.”
The whole story wasn’t helped by rising interest rates, which hurt growth companies like F45 and tech companies. Also, there has been serious recession talk in the US for months and that wouldn’t have helped this company.
What the big-name US law firms come up with should make interesting reading.
The big lesson for investors is to be wary of hype companies because their share price can fall even quicker than they rise. There’s an old saying that stocks go up by the stairs and go down via the elevator. F45’s US listing story followed that script, unfortunately, for a once great Aussie success story.