Mindbody Raises $500M, Acquires ClassPass

Fitness was one of the industries hit hardest by the pandemic. As gyms closed, consumers turned to at-home workouts, often aided by virtual platforms, to keep fit as best they could during lockdowns. Now, as markets open up,

Now, as restrictions ease in most parts of the country, in-person fitness is beginning to return to pre-pandemic levels. So it makes sense that the strongest, most well-capitalized players in the industry will now take a look around to see what assets they can acquire. In all likelihood, these assets will not be trading at a premium any time soon, making this a good time for the strong to get stronger.

I think we saw an example of this yesterday with the announcement that Mindbody has acquired fitness marketplace ClassPass in an all-stock deal for an undisclosed amount. Mindbody also announced a fresh infusion of $500 million, led by the global investment firm Sixth Street, to help accelerate its growth.

The Fitness Industry’s OS

A quick summary for those who aren’t familiar with Mindbody. The private company, founded in 2001 and since 2018 majority-owned by Vista Equity, provides software that an estimated 58,000 small businesses use to run their businesses. Most of Mindbody users are in the beauty and fitness industries. Over time, the platform has expanded from scheduling to include CRM, digital marketing, payments, and more.

Over the past year, Mindbody added additional services to help its customers eke out an existing during lockdowns. These include a virtual platform for hybrid fitness delivery. The company also got into small business lending when it introduced Mindbody Capital

Essentially ClassPass is an app that helps fitness businesses offload excess inventory via an AI-driven solution called SmartTools. So if this afternoon’s hot yoga class has five empty spots, the studio can unload these via ClassPass. ClassPass has subscribers that use the service for access to discounted fitness opportunities. It’s sort of a Priceline for perishable fitness inventory.

Integration Opportunities

ClassPass claims the studios using its tool experience a 30% increase in reservation volume. And they see a 15% to 20% revenue bump as well.

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ClassPass’s CEO said the two companies have a fair number of overlapping customers. And he says this creates a lot of interesting integration opportunities.

“The ClassPass network includes many businesses already working with Mindbody. By combining our respective operations, we will create more seamless integrations and unlock new revenue opportunities for business owners using both services, while continuing to support all fitness, salon, and spa businesses who choose to work with Mindbody or ClassPass,” said Fritz Lanman, ClassPass CEO. “For consumers using our marketplace and professionals enrolled in the ClassPass Corporate Program, our goal is to create greater choice and flexibility in the experiences they can book.”

Discount Price?

Mindbody CEO Josh McCarter said the acquisition is well-timed, given the emergence from the pandemic.

“This acquisition comes at a pivotal time for the wellness industry as it continues to rebound from COVID-19 related closures. And local and authentic experiences are more important to people than ever,” said Josh McCarter, CEO of Mindbody.

“Our companies share a singular focus on bringing wellness experiences to more people, in more places. By leveraging the best of both companies’ technology and expertise, we are more committed than ever to providing studios with best-in-class tools to help them grow and thrive, while also driving more consumers to their businesses.”

We also suspect the timing was right for Mindbody to pick up assets below their peak value. ClassPass received a $1 billion valuation shortly before the pandemic hit. As noted, deal terms were not disclosed. Yet we are pretty confident ClassPass did not emerge from the pandemic with that valuation intact. Let’s see what else Mindbody scoops up with its fresh batch of capital.

Just an interesting note. In 2017, Tula Software, a smaller Chicago-based Mindbody competitor, posted a blog predicting this transaction. Sometimes you just have to wait long enough. And eventually, you’ll be right.

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