Navigating Yoga Studio Acquisitions and Mergers: Key Considerations for Growth and Expansion
By Dennis Bluthardt at Namaste Studios
In recent years, growth in health and wellness has caused the yoga business to boom. This offers a moment to discuss what yoga studio mergers and acquisitions can bring to market presence and saturation occasions. Mergers and acquisitions also allow yoga studios to pool resources to consolidate expenses and increase profit margins.
Industry trends also aim to offer a more diversified, “holistic” fitness experience. More specifically, these are fitness experiences that aim to exercise the body, mind, and spirit through yoga’s emphasis on meditation. As one can expect, nearly all major “holistic” health and wellness companies feature “meditation” in their branding. Therefore, if one studio and another are, say, more focused on “Athletic Performance” or “Mental Wellbeing” respectively, it would probably benefit each of the two parties to consider a merger so that they can create a more distinct and “market-complete” brand that can compete better in the saturated yoga market. In such a two-studio merger as described above, it would not surprise me if already-existing “wellness programs” and an abundance of workshops and “community events” were “copied over” longer down the line, as that makes good strategic sense to retain one’s market position, and in turn, survive as many ordinary customers want that.
Potential investors are, of course, also expected to make informed decisions. For public relations reasons, the investor must have performed due diligence on the other studio before acquiring another studio as part of any merger process.
Key Considerations Before Pursuing an Acquisition or Merger
Whether you are considering an acquisition or a merger, you need to know the business strategies of the studio that will be gaining or losing teams. Game development is a team sport; leaders must share a common direction before sailing. If they do not, the project is sure to fail. DISC Assessments and building Alignment Models using the Business Model Canvas (see Business Strategy Alignment Plans below) are great tools for aligning teams in the studio with the operational strategy. The first of the three steps will get your studio “merger-ready”.
Valuation of Yoga Studios
A precise evaluation can assure a deal’s success in a vertical market like yoga studios. Valuation always matters, but in a specialty market, making headway on this figure is like getting the last donut hole out of a Boston cream: it can be challenging, but the deal doesn’t have the required flavor until you reach that moment. It will tell you where the studio is now and, more importantly, where it may be heading. It’s a critical document that informs buyers and sellers of realistic expectations of a deal, and it can help make the dance go a lot more smoothly between the two.
One way to value a studio is through a “revenue” approach. You get a sense of this by knowing how the studio generates profits. Class fees, membership packages, and retail sales will enhance prospective buyers’ ability to see the future. It also gives an impression of how “sticky” (i.e., the likelihood of the subscriber/customer to be there in the future). It will also give you some perspective on the personal perspective that the buyer will have – not every owner “sees into the future”.
Another approach is the asset sale. It’s where the sum of certain parts is bundled together to create the offer. It reflects the styles of classes, various payment methods, in-common subscriptions, member fulfillment, MECCA members, technology, impressive design, and “good” membership lists (how they got the leads, drip campaign functionality); tadpole advisories. There is a wide variety of “attack planes,” each with its unique offering for the attack campaign. Marketing specialists are expensive and hard to find.
The third approach is simply a rate of return formula for operational profit. Suppose a reasonable offer can be made based on these numbers that meets both the company’s MEDIUM and LONG-TERM profit goals, the M&A company’s fixed “operating expenses, “an offer acceptable to their wealth/capital management,” and an offer that is in the BROAD view of sales but offers security/serenity to potential losses or projected losses. In that case, an agreeable offer may be met.
Understanding the Landscape of Yoga Studio Acquisitions and Mergers
The yoga industry has risen significantly, with more people doing a downward dog than ever.
General health and wellness crazes have sent more people onto their mats and looking for a range of class offerings. This has seen a trend in yoga studios for strategic acquisitions and mergers to increase presence. The cost to run several locations is minimized, and the product for the end customer is (hopefully) improved, allowing the yoga studio to make a better return.
Acquisitions may also see the integration of styles of yoga and similar product offerings to one larger all-in-one wellness center, for example, Hatha yoga or Vinyasa (as I would assume the two merged companies would offer various styles). More yoga-enthused cult-like followers under the same roof, but more sweat never hurt a yogi. Your cross-legged “ommmm” ing community will build. This will also offer customers more cross-promotion, like existing offerings that might be counseling along with your back rub or the next life redirection juice cleanse at that Vietnamese bamboo yoga resort.
Ultimately, the expansion has been seen within the creation of sports-luxe brands, not Lululemon but the yoga industry, because let’s face it, who doesn’t do yoga? So what further developments are there to be seen? Dun, dun, dun. Well, the world looks in anticipation of Asia’s global apparel industry, and, quite frankly, hashtag activewear is inbound. It is assumed, yet a speculative forecast, that we will see the continued hike through our upward dog into future, with the expected commercial with publishers looking downward, quite the downward dog indeed.
Integration Strategies for Successful Mergers
After the deal, cultural integration becomes a significant factor in whether the integration will ultimately be considered a success. How do you merge two studio cultures? Each culture might have different, almost proprietary, “this is how we do it here” ways to approach their work. Each will undoubtedly have varying levels of studio perks. As with the above, have these conversations with your employees about the “merger” of cultures. You will want them to be a part of this process. This will help with the third bullet above: they will want to be a part of this new studio.
While we’re on culture, let’s not forget the operational integration.
Identify some of the processes that work in each and evaluate whether you can implement them throughout the studio. You will find that best practices exist in both. It will be up to you to ensure they are integrated correctly.
In organizational development (OD), you will undoubtedly be faced with the concept of the “change curve” at some point. Look it up. Post-OD integration is a very real pastoral “journey” for teams that have undergone some of the large-scale changes, like a merger. Two teams will ” come together” to create this new “blended” team. The merge must occur at a cultural and relationship level, not simply at an operational level. There are a few other levels that you will need to consider as well. Good, honest, open communication can be of service at this point. You should find out what those things are and address them directly, ensuring that the integration is completed from a community perspective and not solely an operational one.
Future Outlook: Industry Trends and Growth Opportunities
The yoga industry appears poised for some shake-ups, with several other areas influencing the trajectory of future deals:
Wellness is a proactive, holistic, “present” lifestyle that people aspire to. Technological advancements, such as virtual or physical products, increase customer lifetime value. Yoga studios need products that relate to their customer base and what they sell (in addition to yoga).
Yoga brands are looking to align themselves with companies hitting their stride. M&A activity currently poised to intersect with future industry development is figuring more prominently, resulting in two innovative companies that continue to perform at a higher level, deriving x percent of the total market opportunity available. In this light, the developing yoga landscape of tomorrow is fascinating.
As with many others, acquisitions and mergers can be great strategies for studio growth in the yoga industry. Like any strategy, success will come from preparing in the following ways first:
Do Your Research: Your number one priority should be to have an exact list of the studios you would like to acquire, chosen for their perfect alignment with your model and theirs. Your list should come from a quality—not—quantity perspective. It should be based on a detailed analysis of each studio’s market, culture, place in that consumer’s buying criteria, and product features, advantages, and benefits.
Build Out a Map: Make sure the studio you plan to acquire is aligned with the strategic direction of your studio. This sounds like an easy thing to do, but the most important measure you should use to define the studios you would like to partner with is their goals. Is the studio looking to grow beyond doing the same thing in a neighboring city or suburb, or could it be taking on a different demographic with a slightly different practice whose goal would be strategically appropriate because, say, it would offer a significantly more significant go-to-market advantage that way?
Agree on the Vision: All the infrastructure described above will be needed to set you on a clear path to the acquisition, merger, and beyond. Success in your mission will all come down to whether you have done the best job getting everyone on board to build the most compelling vision of the future in the minds of your customers.
To learn more, visit Namaste Studios and book a session with one of our Business Consultants here. Additionally, you can find more of our Business Consulting Blogs here.
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