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Monday
Jul142014

New brand, new clubs for former Club One management team

Active Sports Clubs founders, from left, Carey White, Jill Kinney and Bill McBride.It’s been an interesting year for Jill Kinney, Bill McBride, and Carey White.

In January, Kinney, the co-founder of Club One, Inc., a prominent and highly regarded San Francisco–based chain, joined with McBride, the company’s former president and COO, and Carey White, its former CFO and CTO (chief technical officer), to embark on a new journey.

Their goal was to work, with the help of equity partners, to acquire the assets of Club One, and launch a new lifestyle brand focused on the local communities and client site environments the firm planned to serve.

The name of the new entity: Active Sports Clubs (ASC). At the time, Kinney also was overseeing Clubsource

Development Partners, LLC, which she’d founded in 2007 to develop community fitness centers; and serving as the CEO of Itrim US, LLC, a business she’d launched in 2011 to capitalize on a unique Swedish exercise and weight-loss concept.

In March, after three months of intense effort, the three achieved their ambitious objective. The founding partners of ASC, a venture owned by Active Acquisition Partners, LLC, acquired virtually all of the assets of Club One - 65 sites, including eight owned commercial clubs with two branded managed sites, comprising 10 ASC locations; management contracts for commercial, corporate, and hospital fitness centers, community centers, and Jewish Community Centers (JCCs); and some 145,000 members in 15 states.

The value of the transaction was not disclosed.

Kinney serves as the chairperson of ASC, McBride as its president and CEO, and White as its CFO and CTO.

Clubsource will subsequently be acquired by ASC, but Itrim remains an independent entity.

And Club One, Inc. - well, it basically is no more. It no longer owns or manages fitness facilities of any kind. “They’re in the process of winding down the organization,” reports Kinney.

The ‘need’ for a new business
The birth of ASC is the culmination, the end result, of a long, evolving process for the three principals.

Jill and her husband, John, had founded Club One in 1991, starting with two clubs in San Francisco, and, by 2006, assisted by some 12 individual investors, had transformed the company into a financial juggernaut with 26 owned facilities, approximately 89 managed facilities, 250,000 members, and $89 million in annual revenues. McBride and White joined the company in 2003.

In 2008, she and her company Clubsource opened a newly developed, 40,000-square-foot community center in Petaluma, Calif. Kinney hired Club One’s management-services team, including McBride and White, to operate the facility. In essence, she became a client of the company that the Kinneys had founded.

“We opened Petaluma just as Lehman Brothers was tanking,” notes Kinney, “but it thrived.”

White left and joined Kinney at Itrim. Then, in May 2013, McBride departed and set up a consulting company, BMC3, in Danville, Calif..

When she’d hired Club One, Kinney had had the foresight to include a clause that allowed her to cancel the contract if former CEO Jim Mizes and McBride were no longer leading the company: Now she executed it. “I just didn’t feel that Petaluma was receiving the level of attention it deserved,” she explains.

McBride rejoined Kinney and White, and, together, the reunited team decided it was time to build a new brand. “We decided to start with Petaluma,” says McBride.

The three founded a new company, soon to become Active Acquisition Partners, to own and operate the Petaluma club. On January 1, 2014, it was relaunched and rebranded Active Sports Clubs. Though a single, standalone facility, it sported a plural name - a hint of the founding trio’s aspirations to build a new company with a new approach.

Club One: facing the facts
Though deeply engrossed in and focused on ASC’s transitional needs - new management, business models (suburban and urban), employee recruiting - the trio remained attentive and even more sensitive to Club One’s financial situation.

Robin Klaus, the CEO of Club One, Inc., declined to speak to CBI, but alluded to a “tough rental market” in comments to the San Francisco Business Times. “There were portions of our business that were very healthy, and portions that were struggling,” he said. “The club market is very difficult here, and a rapidly changing rental market made some leases difficult.”

McBride explains that he left Club One over a “fundamental misalignment” with the board of director’s strategy for dealing with the company’s difficulties - divesting its owned properties to become a pure management business. “I didn’t agree with the decision to sell all of the assets and become strictly a management company,” he says. “I’m a believer in consumer brands. Without a core brand platform to operate from, you lose the ability to fund your infrastructure. And you need that infrastructure to serve your clients well.

“Owning your own ‘labs,’ where you can test your programming and best practices, is also valuable,” he continues. “That way, you aren’t experimenting at your client sites.”

Club One, however, couldn’t find a purchaser for its portfolio, he reports. “So it began selling clubs off piece- meal at what may have been a discount—as compared to the value of the entire business, which, because of the diversity of the portfolio, attracted no buyers. Expenses weren’t trimmed fast enough, and a reduced revenue stream left less money to invest in the clubs they owned. Compounded by other events, the end result appears to have been a cash-flow crisis. It seems they just didn’t have the funds to cover their expenses.

“Business crises are like airplane crashes,” McBride observes. “Almost always, you’re looking at multiple causes, not one singular event: weather, pilot error, mechanical malfunctions - a trifecta of things going wrong.”

ASC began to consider the possibility of purchasing some of Club One’s owned, downtown San Francisco clubs. “But the conversation,” recalls Kinney, “quickly shifted to the topic of acquiring most of Club One’s assets.” Club One was amenable to entering the discussion.

The transaction, Kinney decided, “would be good for everyone - a win/win/win situation.

“From our standpoint, there were strong reasons to make this work,” she explains. “We knew Club One intimately, and we knew that it was fundamentally a strong company - it had very good core sites. But its overhead was just too high.”

“A couple of unfortunate circumstances had left it in desperate cash-flow straits,” adds McBride.

The proposed purchase was the biggest, most complex, and, in some ways, most problematic that the team had ever contemplated. And the clock was ticking.

Because of the cash-flow crisis, the leadership of Club One, Inc., had decided to shutter its clubs on Friday, February 28. Signs announcing the closure had already been made for the clubs’ doors.

“If you go dark on a club,” says McBride, “there are unforeseen consequences. It’s hard to recover from even a short-term closure. We were up into the morning of March 1 trying to make this work.”

February 28: doing the deal
The negotiations, complications, and unanticipated developments made for a dramatic, fast-paced, and down-to-the-wire ride for everyone involved. “From mid-February on, we were pretty much in a full-court press,” says McBride. “Each of us was working our sides of the deal, and Jill was busy lining up investors and raising the money.”

Active Sports Clubs co-founders poolside.Eventually, they decided to structure the deal as an asset purchase agreement, with ASC obtaining virtually all of Club One’s assets, while assuming only its liabilities to its employees and members. What that meant, however, was that ASC would have to get assignments or renegotiate, nearly immediately, all of Club One’s contracts and leases with its landlords and management-contract clients.

“Over 40 separate lease and management contracts had to be assigned,” White recalls, still somewhat awed by the task. “Bill and the team did a fabulous job with Club One’s clients, firms such as, among others, eBay, McAfee, and Electronic Arts, and our JCC partners. He and other leaders in the organization got on the phone with them, explained who we were and what we planned to do. The team reassured them, asking, ‘Will you allow us to continue serving you?’ ... For two solid weeks, we were working what seemed like 24/7 with a whole team of attorneys.”

Virtually all of the existing corporate clients signed back on, entering into a new management agreement, or, in some cases where it seemed to make sense, a consulting agreement. A couple of companies that had cancelled with Club One changed their minds and stayed.

The looming, doomsday deadline arrived, without a deal having been struck, introducing a new host of headaches and heroic demands. As of midnight on the 28th, Club One’s 2,200 employees were, technically, unemployed, and had lost their health insurance. At 1:30 a.m., Saturday morning, 90 minutes past the zero hour, White went to bed. When he awoke a bit later, he turned on his computer and discovered a deal had been struck to close on Thursday, March 3.

A short-term management agreement had been put in place to manage the portfolio from March 1 to March 3. After the deal was finalized around 2:30 a.m., Kinney and McBride turned in, so no champagne flowed that night. No bottles were cracked, either, over the next few hectic weeks.
The details that had to be dealt with were endless. White had to drive to Sacramento quickly to formally turn Active Acquisition Partners into an LLC. “We had to open a bank account,” says McBride, “because we didn’t have a place to wire investment funds to.” And then there was the pressing matter of dealing with their 2,200 new employees’ insurance needs. The team handled it by providing subsidies on gap insurance for March, and by having insurance reinstated, retroactively, for April 1.

“This was the best possible outcome we could have hoped for,” assesses McBride. “Liabilities were limited. Jobs were saved. Clients were served. Things are going well. And morale is good, even though everyone was stretched to launch a large new organization in a matter of weeks. Our team is still working in a heroic fashion to move from stabilization to improvement.”

Active Sports Clubs: in action
So the deal has been struck. And a brand-new, capitalized business - but one with a 23-year legacy - is firmly in place. What comes now? How does the next chapter read?

“There are two real drivers going forward,” suggests McBride. “One is serving our members, while, at the same time, supporting our team, and the other is profitability.

“It’s been a while since I’ve been directly involved in the management of Club One and the culture that we’d created - family-friendly, lots of respect, lots of passion, a high level of commitment up and down the organization,” notes Kinney.

“The organization had suffered from a variety of distractions and strategies,” reflects McBride. “Now is a wonderful time to build ASC on the original Club One foundation, imposing a strong focus, discipline, and culture - a culture dedicated to ‘People first!’”

ASC’s corporate heart - Kinney, McBride, and White  -beats a bit quicker at the thought of building the brand. The company has had nibbles about potential acquisitions and new management opportunities, but it’s moving cautiously. “We’re not interested in growth for growth’s sake,” avers Kinney. “We’re interested in selective growth—finding partners and locations that work well in our wheelhouse.” The team also is eager to make the most of Itrim’s potential. The service is currently offered in six ASC facilities, and Kinney is currently “in discussion” with other club companies.

“In terms of efficacy and long-term results, this weight loss approach is like none other I’ve seen,” attests McBride, “so we and Itrim are launching the program at our owned clubs, client sites, as well as at other locations.”

It has been a busy, demanding, and often daunting period for Kinney, McBride, and White, but now all of the pieces seem firmly, and promisingly, in place, ready to reignite the dream that inspired the creation of this unique club company 23 years ago. “Our values and vision haven’t changed,” says Kinney. “We’re still striving for quality engagement with our members, people who are happy to spend time and money at our clubs, working with a team of professionals who are growing, fulfilled, and happy - just the way we all believe it should be.”

– John Halbrooks can be reached at j.halbrooks@verizon.net

 

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