EDIT: This SPAC merger has been terminated. I'm leaving the DD below as I'll be investing in F45 when they do go public. I have exited my position on this.
I've obsessively been doing DD on F45 (merging into CRSA; warrants: CRSAW) since early July. I've spent at least 50-100 hours picking it apart from every angle, and I've been dollar cost averaging into the shares and warrants for several weeks. I have personally concluded that this is the most underrated/undervalued SPAC merger because people have been temporarily tricked by Covid / the market to not actually look into it. I've never done a post like this before, but I decided that since I've done the DD and no one else seemed to be, I guess I'm the one to distill it for people to consider the sizable opportunity.
The company is a cash cow that is rapidly growing an imposing global brand with an innovative and scalable model of high intensity interval training studios that use a patented software system to deliver a new daily HIIT workout to every global location via digital monitors on the studio walls. I think that the vast majority of investors have skipped past looking below the surface based on the reasonable assumption that "gym + covid = bad". I encourage you to take a few minutes to look below the surface here and make sure you're not missing a significant opportunity. I believe it is.
The amount of info I could type out is more extensive than most would care to read, so I figured I'd break the key points down into a list of my favorite things about F45 as an investment opportunity. Additionally, I highly encourage you to spend 5-10 minutes reading the investor presentation hosted on Crescent Acquisition's website here.pdf). They did an excellent job of presenting the product, business model, financials, etc.
I've accumulated a lot more information than I could lay out here, so feel free to ask any questions and I'll get to all of them as soon as possible. Here are ten of the reasons that I believe CRSA is the most underrated/undervalued SPAC with an upcoming merger:
As a franchise company, F45 makes most of their money from selling franchises and collecting monthly franchise fees. New franchises pay an establishment fee of up to $50k and purchase $120k in proprietary equipment from F45. Once opened, the franchises pay a $2500/month franchise fee.
(Note that the difference between "Franchises Sold" and "Total Studios Open" on the chart below seems to primarily be a matter of the lag between a franchise agreement being signed and the franchise actually opening for business, rather than failed franchises which is what I thought initially.)
https://preview.redd.it/zq6wclz3ntk51.png?width=2150&format=png&auto=webp&s=7eb89ae1b10e54fece71cb988d20216cbd002821
The slide below is interesting as well. This isn't from the investor presentation, but rather a March '19 franchise sales presentation.
The item that intrigues me the most is that F45 surpassed Crossfit as the largest gym network in Australia within just four years of launching their first location...this is explosive growth, and the United States has now overtaken Australia as their largest and fastest growing market. Their product is clearly resonating with people, even if you've never heard of it yourself (as I hadn't).
https://preview.redd.it/k5mvpqijntk51.png?width=2546&format=png&auto=webp&s=9a9ba503522252b2b0dcc5390b46e543aae3d264
As you can see in the chart in the first point, F45 was projecting new franchise sales this year of 174 due to Covid. In their August 6, 2020 8K filing, they provided a significant update to this, but they haven't updated the projections slide to reflect the latest bullish information.
Their 8/6 update stated that they sold 244 franchises so far in 2020 through July, including 124 in June/July alone. If you extrapolate out the monthly new franchise sales below, you can infer that they'll likely end up selling over 400 franchises this year, assuming the recent sales success continues.
https://preview.redd.it/bdw786b5ntk51.png?width=2038&format=png&auto=webp&s=532cba1aea8dbf116e7a80493b3f59afb2ecdecf
The 8/6 update further stated that 50 new studios opened from June through early August, and that 78% of the pre-covid franchise network was re-opened as of August 3, 2020 and that the median revenue per studios opened for seven weeks was back to 88% of pre-covid levels. Keep in mind that F45 makes their money from franchise fees, so the main factor is that studios are open and hopefully paying the full fee.
Lastly on this point, CRSA is valuing F45 at less than half of their expected pre-covid IPO price. Robert Beyer, executive chairman of CRSA and founder of Crescent Capital Group ($28bn in AUM) had this to say on the conference call: "F45 has a steep growth trajectory, proven over seven years of opening more than 1,200 and selling nearly 2,000 franchises in more than 50 countries. The company has been profitable since inception, with extremely high cash flow margins, not only for the company but for its franchisees....This is simply one of the most exciting public market stories we’ve heard, with a valuation that is 30% to 50% below its peers and less than half the expected price of its previously planned IPO, which was interrupted by the worldwide lockdown only a few short months ago."
The company's franchise sales team has grown from 6 to 34 members since 2019, with 18 in the Americas, three in Europe, three in the Middle East & Africa, and five in Asia, as well as five who cater to college, corporate, and military (F45s are rapidly popping up in college rec centers and soon on military bases).
The chart below shows open and soon-to-open locations around the world. It's hard to tell on this map, but I believe it's 776 in the Americas (mainly USA), 124 in Europe, 8 in Africa, 200 in Asia, and 572 in Australia. (The company started in Australia and quickly penetrated that market. The fastest growth now is in the United States.)
https://preview.redd.it/66dqonw6ntk51.png?width=672&format=png&auto=webp&s=1676d7873c6db4d0122b831ddac7793a2c254c9b
No offense at all to Planet Fitness and PF members, but I don't think a lot of celebrities are members there.
In fact, the company doesn't really even need the capital from this merger. They've suggested how they may use it, and I'll get to that in a later point (it's bullish).
The main metric to watch is the number of franchises sold, as you can assume that each new franchise will add the following revenue: $50k establishment fee (there seems to be wiggle room with this depending on the deal), $120k equipment purchase, and $30k+ in annual recurring revenue from the monthly franchise fee. There's also a $25k franchise renewal fee after five years, and some other fees as well, including the anticipation of equipment pack refreshes. (Note on page 49 of the investor presentation.pdf) how this revenue is recognized...the establishment fee is amortized over ten years, so each franchise sold will add approximately $5k to revenue for the ten years after it's sold from the establishment fee, in addition to the monthly franchise fee.)
I believe that F45 has tapped into a unique way to scale a HIIT training business into a global franchise model, and the success of that model is evident in the number of franchises being sold globally. It's great that they have a certain level of protection from others replicating this model. Assuming the patents prove defensible, it would be hard for competitors to replicate their success in their largest markets.
Based on informal polling of friends and chatter on the internet, it seems evident to me that very few people in the United States have heard of F45. However, if you live in a small city or larger and search your city on the locations map on their website, chances are that there's a studio open or opening soon near you.
Since each studio only needs 75-150 members to operate profitably and can't accommodate many more, it's been quietly growing and thriving, unnoticed by the majority of people. As the number of locations grows to accommodate more people, I think it's highly likely that you'll be hearing about it a lot before long. If you know someone who does Crossfit, chances are you'll know someone who does F45 soon.
As an addendum to the paragraph above, if you've ever read "One Up on Wall Street" by Peter Lynch, I believe that this is a perfect example of the type of opportunity he describes. It's a rapidly growing, profitable company with a great product and a business model that's easy to understand, but that most people have not yet heard of. Unless some unanticipated force somehow stops them dead in their tracks (as Covid appears to have failed to do), the growth is likely on enough of a trajectory to where this will be a hot stock before too long.
edit: I'm adding a few city maps below. (Explanation in the captions.)
These are the F45 locations in Melbourne, Australia. This is insane. It's like Starbucks. I can only think of a few companies with this level of critical mass in major cities.
Here are the locations in the Los Angeles area. It's starting to approach Melbourne, Australia levels. (Each number represents the number of locations under that dot. I couldn't zoom in further and capture the whole area.)
These are the current locations in Boston, MA. One open and two opening. Compare this to Melbourne and Los Angeles and you can see why this is only the first inning.
The reason why cities can accommodate so many F45 locations is because of the favorable unit economics. Each location breaks even at 75-150 members, and each location can only accommodate about 350 members. Therefore, as F45 reaches critical mass in a city, a large number of locations are needed to meet the demand. This is bullish for the company since more locations = more franchise fees.
This is bullish because it will significantly accelerate their revenue growth. Instead of grossing ~$30k in franchise fee revenue each year per location, company-owned locations will likely contribute $275k-$500k in revenue per year. Planet Fitness has followed a similar strategy to this...they've turned to pursuing company-owned locations which has accelerated their revenue growth.
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Additional Notes:
Like I mentioned, I'll try to answer any questions to the best of my ability as soon as possible in the comments below.
None of this is investment advice, simply an outline of the due diligence that made me highly bullish on F45. Do your own research--there's great further reading in the documents on this page of Crescent's website. In particular, the investor presentation.pdf) I mentioned earlier does an excellent job of laying out the product, business model, financials, etc in an easily digestible way.
submitted by SlowRyder to SPACs [link] [comments] The company is a cash cow that is rapidly growing an imposing global brand with an innovative and scalable model of high intensity interval training studios that use a patented software system to deliver a new daily HIIT workout to every global location via digital monitors on the studio walls. I think that the vast majority of investors have skipped past looking below the surface based on the reasonable assumption that "gym + covid = bad". I encourage you to take a few minutes to look below the surface here and make sure you're not missing a significant opportunity. I believe it is.
The amount of info I could type out is more extensive than most would care to read, so I figured I'd break the key points down into a list of my favorite things about F45 as an investment opportunity. Additionally, I highly encourage you to spend 5-10 minutes reading the investor presentation hosted on Crescent Acquisition's website here.pdf). They did an excellent job of presenting the product, business model, financials, etc.
I've accumulated a lot more information than I could lay out here, so feel free to ask any questions and I'll get to all of them as soon as possible. Here are ten of the reasons that I believe CRSA is the most underrated/undervalued SPAC with an upcoming merger:
1. It’s growing 40-50%+ per year.
The charts below show F45's revenue and EBITDA growth over the past few years, as well as projections for this year and next (see point #2 as a caveat to the projections, because their franchise sales numbers this year have actually proven significantly better than forecast here, which should also have a positive effect on revenue).As a franchise company, F45 makes most of their money from selling franchises and collecting monthly franchise fees. New franchises pay an establishment fee of up to $50k and purchase $120k in proprietary equipment from F45. Once opened, the franchises pay a $2500/month franchise fee.
(Note that the difference between "Franchises Sold" and "Total Studios Open" on the chart below seems to primarily be a matter of the lag between a franchise agreement being signed and the franchise actually opening for business, rather than failed franchises which is what I thought initially.)
https://preview.redd.it/zq6wclz3ntk51.png?width=2150&format=png&auto=webp&s=7eb89ae1b10e54fece71cb988d20216cbd002821
The slide below is interesting as well. This isn't from the investor presentation, but rather a March '19 franchise sales presentation.
The item that intrigues me the most is that F45 surpassed Crossfit as the largest gym network in Australia within just four years of launching their first location...this is explosive growth, and the United States has now overtaken Australia as their largest and fastest growing market. Their product is clearly resonating with people, even if you've never heard of it yourself (as I hadn't).
https://preview.redd.it/k5mvpqijntk51.png?width=2546&format=png&auto=webp&s=9a9ba503522252b2b0dcc5390b46e543aae3d264
2. Covid has not been nearly the significant setback that was feared.
As mentioned in the first point, the 2020 projections above have actually proven to be significantly conservative, which should increase 2021's projections as well.As you can see in the chart in the first point, F45 was projecting new franchise sales this year of 174 due to Covid. In their August 6, 2020 8K filing, they provided a significant update to this, but they haven't updated the projections slide to reflect the latest bullish information.
Their 8/6 update stated that they sold 244 franchises so far in 2020 through July, including 124 in June/July alone. If you extrapolate out the monthly new franchise sales below, you can infer that they'll likely end up selling over 400 franchises this year, assuming the recent sales success continues.
https://preview.redd.it/bdw786b5ntk51.png?width=2038&format=png&auto=webp&s=532cba1aea8dbf116e7a80493b3f59afb2ecdecf
The 8/6 update further stated that 50 new studios opened from June through early August, and that 78% of the pre-covid franchise network was re-opened as of August 3, 2020 and that the median revenue per studios opened for seven weeks was back to 88% of pre-covid levels. Keep in mind that F45 makes their money from franchise fees, so the main factor is that studios are open and hopefully paying the full fee.
Lastly on this point, CRSA is valuing F45 at less than half of their expected pre-covid IPO price. Robert Beyer, executive chairman of CRSA and founder of Crescent Capital Group ($28bn in AUM) had this to say on the conference call: "F45 has a steep growth trajectory, proven over seven years of opening more than 1,200 and selling nearly 2,000 franchises in more than 50 countries. The company has been profitable since inception, with extremely high cash flow margins, not only for the company but for its franchisees....This is simply one of the most exciting public market stories we’ve heard, with a valuation that is 30% to 50% below its peers and less than half the expected price of its previously planned IPO, which was interrupted by the worldwide lockdown only a few short months ago."
3. The business is successfully scaling globally (very quickly).
One of the most intriguing things to me about F45's growth and the investment opportunity is that F45 is proving that their model is scalable around the globe, something that most other fitness franchises have not achieved.The company's franchise sales team has grown from 6 to 34 members since 2019, with 18 in the Americas, three in Europe, three in the Middle East & Africa, and five in Asia, as well as five who cater to college, corporate, and military (F45s are rapidly popping up in college rec centers and soon on military bases).
The chart below shows open and soon-to-open locations around the world. It's hard to tell on this map, but I believe it's 776 in the Americas (mainly USA), 124 in Europe, 8 in Africa, 200 in Asia, and 572 in Australia. (The company started in Australia and quickly penetrated that market. The fastest growth now is in the United States.)
https://preview.redd.it/66dqonw6ntk51.png?width=672&format=png&auto=webp&s=1676d7873c6db4d0122b831ddac7793a2c254c9b
4. The celebrities who use, support, and invest in F45 make the brand sexy.
Mark Wahlberg is a key investor in F45 and will be on the board after the merger. Hugh Jackman trained for his role as Wolverine in the X-Men film series at F45. Other celebrities who use or have used F45 include Nicole Kidman, Channing Tatum, Nicole Ritchie, Sam Smith, Ricky Martin, Joel Madden, Russell Crowe, Teri Hatcher, and more.No offense at all to Planet Fitness and PF members, but I don't think a lot of celebrities are members there.
5. The franchisees pay for the company’s growth.
The company requires very little capital to fund their growth because the franchise establishment and equipment fees fund the buildout of each new F45 location and thus fund the company's growth. Warren Buffett has long preached that the best investments are companies that require very little capital to run their business. This is a prime example.In fact, the company doesn't really even need the capital from this merger. They've suggested how they may use it, and I'll get to that in a later point (it's bullish).
6. The company is easy to understand and follow.
You don't have to be a fitness nut or in the fitness industry to understand and follow this investment (I'm not a fitness nut or in the industry). Their business model is very simple. They make most of their money from franchise fees, as well as equipment packs.The main metric to watch is the number of franchises sold, as you can assume that each new franchise will add the following revenue: $50k establishment fee (there seems to be wiggle room with this depending on the deal), $120k equipment purchase, and $30k+ in annual recurring revenue from the monthly franchise fee. There's also a $25k franchise renewal fee after five years, and some other fees as well, including the anticipation of equipment pack refreshes. (Note on page 49 of the investor presentation.pdf) how this revenue is recognized...the establishment fee is amortized over ten years, so each franchise sold will add approximately $5k to revenue for the ten years after it's sold from the establishment fee, in addition to the monthly franchise fee.)
7. The company has some level of moat from patents.
F45 holds patents for the innovative technology it uses to power the studios and the global network: https://patents.justia.com/assignee/f45-training-pty-ltd. It is currently actively pursuing a case against an upstart in Australia that is using a model that is allegedly similar.I believe that F45 has tapped into a unique way to scale a HIIT training business into a global franchise model, and the success of that model is evident in the number of franchises being sold globally. It's great that they have a certain level of protection from others replicating this model. Assuming the patents prove defensible, it would be hard for competitors to replicate their success in their largest markets.
8. The product is so good that its members are often described as a cult.
If you search articles and social media, you'll often hear F45 described as a cult. Publicly traded companies with a cult following often do very well, such as Apple and Tesla.Here's the first paragraph of a 2020 GQ UK article about F45: "Whenever a friend of mine has suddenly walked back into my life looking better than they’ve ever looked before, the reason was always the same: F45. The cult exercise class, which can be found nearly anywhere in the world, just seems to work for people."9. The potential for further growth is large enough that this is likely just in the first inning.
F45 estimates that the franchise potential in their existing markets is 25,000, based on the number of studios per capita in Australia. This seems reasonable to me because F45 was able to get to basically a 1:1 parity with Crossfit locations in Australia within three years. F45 is arguably a much better structured / operated business than Crossfit (from a capitalistic investment perspective), which is why I think they were able to achieve a similar number of locations in Australia so quickly.Based on informal polling of friends and chatter on the internet, it seems evident to me that very few people in the United States have heard of F45. However, if you live in a small city or larger and search your city on the locations map on their website, chances are that there's a studio open or opening soon near you.
Since each studio only needs 75-150 members to operate profitably and can't accommodate many more, it's been quietly growing and thriving, unnoticed by the majority of people. As the number of locations grows to accommodate more people, I think it's highly likely that you'll be hearing about it a lot before long. If you know someone who does Crossfit, chances are you'll know someone who does F45 soon.
As an addendum to the paragraph above, if you've ever read "One Up on Wall Street" by Peter Lynch, I believe that this is a perfect example of the type of opportunity he describes. It's a rapidly growing, profitable company with a great product and a business model that's easy to understand, but that most people have not yet heard of. Unless some unanticipated force somehow stops them dead in their tracks (as Covid appears to have failed to do), the growth is likely on enough of a trajectory to where this will be a hot stock before too long.
edit: I'm adding a few city maps below. (Explanation in the captions.)
These are the F45 locations in Melbourne, Australia. This is insane. It's like Starbucks. I can only think of a few companies with this level of critical mass in major cities.
Here are the locations in the Los Angeles area. It's starting to approach Melbourne, Australia levels. (Each number represents the number of locations under that dot. I couldn't zoom in further and capture the whole area.)
These are the current locations in Boston, MA. One open and two opening. Compare this to Melbourne and Los Angeles and you can see why this is only the first inning.
The reason why cities can accommodate so many F45 locations is because of the favorable unit economics. Each location breaks even at 75-150 members, and each location can only accommodate about 350 members. Therefore, as F45 reaches critical mass in a city, a large number of locations are needed to meet the demand. This is bullish for the company since more locations = more franchise fees.
10. Corporate owned franchises will accelerate growth further.
I mentioned earlier in point five that F45 has suggested how they may use the company's merger cash, given that they don't need it for the current growth. They've suggested that they may acquire existing franchise locations or establish new company-owned locations.This is bullish because it will significantly accelerate their revenue growth. Instead of grossing ~$30k in franchise fee revenue each year per location, company-owned locations will likely contribute $275k-$500k in revenue per year. Planet Fitness has followed a similar strategy to this...they've turned to pursuing company-owned locations which has accelerated their revenue growth.
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Additional Notes:
- The warrants (CRSAW) have an exercise price of $11.50 and the company can redeem them after the common shares (CRSA) have traded above $18 for 30+ days. The warrants were selling for $0.60-$0.65 last week. Warrants purchased at $0.60 would return over 900% if the common shares climb higher than $18 within five years of the merger. Based on F45's rapid growth, I believe that the probability of shares going from $10 to $18 in the next five years is high.
- As of July 15, the net asset value per share of the common stock was $10.15. That means that if you're able to buy the shares for less than $10.15, your risk is extremely low because you could technically redeem your shares for $10.15 in cash around the merger closing. (However, hopefully the F45 story gets out there and it's no longer trading below the NAV by the merger closing.)
- Investor relations said a week or two ago that they're awaiting SEC approval of the proxy statement and then they'll send it out with the shareholder vote date. They said that they now expect closing to be "late Q3 / early Q4".
- Note that there is risk with the warrants, in part because if the merger were somehow derailed, they could lose some or all of their value. However, the compensation for that risk right now is that the return potential on them is massive (as outlined above). The main risk for the merger falling through seems to be the possibility that too many shareholders redeem their shares. In that case, Crescent has the option to add more cash to complete the merger. I personally believe that they would do that. They seem to fully believe in F45 as an investment, and they have a vested interest in the merger going through and then the shares doing well. They announced the merger in June, well into Covid, so this wasn't affected by the Covid surprise. F45's franchise sales have been solid despite Covid, as outlined earlier.
Like I mentioned, I'll try to answer any questions to the best of my ability as soon as possible in the comments below.
None of this is investment advice, simply an outline of the due diligence that made me highly bullish on F45. Do your own research--there's great further reading in the documents on this page of Crescent's website. In particular, the investor presentation.pdf) I mentioned earlier does an excellent job of laying out the product, business model, financials, etc in an easily digestible way.
