Fund 1 Investments says it would pay $5.61 to $7.00 a share for the Club Pilates and Pure Barre franchisor, six months into a sale review with no announced result.
Six months after Xponential Fitness put itself under review, one of its biggest shareholders has stopped waiting for the answer.
In a letter to the board dated Oct. 30 and made public in a Schedule 13D amendment, Fund 1 Investments said it is prepared to propose buying the Club Pilates and Pure Barre franchisor for $5.61 to $7.00 a share in cash. Fund 1 says the bottom of that range is at least 50% above Xponential's Oct. 29 close of $3.74. At the top, the premium is 87%, according to Seeking Alpha. Shares jumped Friday after Bloomberg first reported the approach.
The numbers explain the impatience. Xponential announced a review of strategic alternatives, including a possible sale or merger, on April 6, with Jefferies advising. Its stock closed at $6.76 that day. By Oct. 29 it was $3.74, which Investing.com put at a market value of about $184.5 million.
"More than six months later, however, there has been no publicly announced progress on the review and shareholders have suffered a further decline in the value of their investment," Fund 1 wrote.
Fund 1, a long/short equity firm focused on consumer, telecom, media and technology, owns about 9.9% of Xponential's Class A stock and holds cash-settled swaps on roughly another 9.98%, for economic exposure of about 19.9%. Under a Sept. 28 agreement with the board, it cannot go above that level for five years. Its pitch is a take-private in which other large holders could invest alongside it, with Fund 1 keeping the majority.
The case it makes is about the studios. "As a private company, Xponential could focus on rebuilding studio-level demand, generating free cash flow and strengthening its balance sheet, without the pressure of quarterly reporting and the demands of public market investors," the letter says. It also cites "near-term pressure on same-store sales" and a debt-heavy balance sheet. For franchisees, those are the lines that matter: whoever owns the franchisor decides how much money goes back into marketing, technology and support at the studio level.
There is a hurdle. Xponential adopted a stockholder rights agreement, often called a poison pill, on Oct. 12, and Fund 1 is asking the board to waive it so other shareholders can join the bid. The proposal is non-binding and subject to due diligence, financing and board approval, though Fund 1 says final agreements would carry no financing condition. Xponential had not commented on Friday, according to Seeking Alpha.
It caps a busy week for public franchisors. Applebee's and IHOP parent Dine Brands met a $39 buyout bid with a poison pill of its own, and Trian brought franchisee Flynn Group into its bid for Wendy's. All three pitches rest on the same claim: a struggling franchise system fixes itself faster away from quarterly earnings calls.
Fund 1 says its talks with the board have been "highly constructive." Whether a board that put up a pill this month treats Fund 1 as its buyer or its problem is the next thing to watch.
Revscale Media (illustration)The franchise-focused private equity firm hit its hard cap in two months, more than doubling its prior fund and adding buying power for brand deals.
Revscale Media (illustration)Out West Restaurant Group runs 61 Outbacks and owes nearly $320 million. Bloomin' Brands has offered $26.3 million to take the restaurants back, which would pull most of Outback's U.S. franchise system in-house.
Yum BrandsYum Brands ended its deal with Encanto Restaurants, and every KFC and Taco Bell on the island closed Monday. Some employees learned about it at the door.
Revscale Media (illustration)The nearly 200-unit iced tea chain becomes the third brand at a restaurant-only sales firm whose team includes the IFA's board chair.
Revscale Media (illustration)Yum says drive-thru voice AI lifts satisfaction 6% and sales about 1.5% where it runs. Taco Bell U.S. same-store sales still fell 4% in the quarter.
TGI FridaysA creditor trustee says former owner TriArtisan drained the chain for a decade. The new management says two more U.S. franchisees are weeks away.
