F45 is one of the world's fastest-growing gym franchises. What started as a small studio in the humble suburb of Paddington, Sydney is now a multinational franchise with over 1,750 centers in 45 countries across the globe. It has over 650 franchises in the US alone.
F45 was heavily advertised by some of the industry's biggest names, including Greg Norman, David Beckham, Magic Johnson, and, of course, actor Mark Wahlberg—the company's investor and brand ambassador.
The company had a massive cult following from its inception until 2019. But when 2020 came around, everything went downhill. This article discusses the F45 IPO Failure, including its history, the reasons for the F*** up, and where the company stands today.
F45, also known as Functional 45 or F45 Training, is an Australian-born fitness centre that has taken the world by storm—for better or for worse.
Co-founded in 2011 by former Sydney bankers Adam Gilchrist and Rob Deutsch, F45 combines functional training with 45-minute high-intensity interval workouts that are fun, fast, and results-driven.
With over 1,750 studios in 45 countries across Oceania, North America, South America, Africa, Europe, and Asia, it's one of the fastest-growing fitness franchises in history. Still is, despite recent events.
At the time, high-intensity workouts weren't quite as popular as, say, aerobic training and yoga. Thus, F45's training concept, though simple, was borderline revolutionary. And the results were there, clear as day. F45 was legit and everyone wanted it.
So, how did F45 go from cult classic to near bankruptcy? The answer isn’t as complicated as you may think.
As with most bona fide success stories, F45 came from humble origins. Let's go through its early beginnings, its rise to success, and its unexpected downfall.
Rob Deutsch launched his first F45 studio in Sydney, Paddington, in 2011.
The studio was nothing special, tucked in an unassuming neighborhood with a big "F45" label on its glass doors.
It didn't have fancy changing rooms with hair dryers or automatic flush toilets or a big variety of fitness equipment. It was just a small studio with basic fitness supplies and bookshelves to place your stuff on during the workout.
Deutsch charged a sum of $65 a week, and while exuberant, clients kept coming back for more.
Deutsch's training plan was as difficult as they come. Clients work through a series of intense workouts for 45 minutes until they're left red-faced and sweating through their clothes. They'd shakily drag themselves home, muscles screaming in pain, then do it all over again a few days later.
So, what exactly made F45 so successful? Two things: 45-minute workouts and high prices.
When you're paying $65 for 45-minute workout classes, you'd make any excuse to go to not waste the membership fee you've paid. If you cancel at the last minute, you won't get a refund. So why not just attend the class? It's only 45 minutes, so it's not like you're spending the entire day at the gym.
The formula was perfect for people with busy, hectic schedules. With it, Deutsch went from making nothing for the first couple of months to millions in under a year.
With the help of former Sydney banker Adam Gilchrist—which Deutsch had enlisted as a co-founder in 2013—the duo sold the first F45 franchise. And that was just the start of it.
The once no-name fitness center grew into a full-blown empire within its first few years of launch. In two years, Deutsch and Gilchrist sold around 500 franchises in Oceania, North America, and some parts of South Asia.
During the expansion, F45 sponsored dozens of big-name celebs like Hugh Jackman, Mario Lopex, and David Beckham to advertise the center. Other celebrities followed shortly thereafter, with most of them claiming that F45 was their "go-to" fitness center.
F45's most noteworthy celebrity supporter was—and still is—American actor and businessman Mark Wahlberg. He consistently appeared on F45's social media accounts and vice versa.
In 2017, F45 expanded to the UK with 50 franchises sold: 35 in London and 15 across Manchester, Brighton, Birmingham, and Bournemouth.
Between 2017 and 2018, F45 opened studios in Europe, most notably in Switzerland, Finland, Germany, and the Czech Republic. At the same time, F45 began heavily marketing its services to US colleges in an effort to make a mark among young groups of people.
Finally, in 2019, F45 launched studios in Iraq and Afghanistan, as well as Mauritius and Kenya in Africa—totaling 40 countries overall.
Around the same time, Mark Wahlberg teamed up with FOD Capital to buy a $450 million stake in F45.
F45 was undeniably one of the fastest-growing fitness franchises in the world. Shortly after Mark Wallberg's investment, the company's revenue jumped nearly five-fold—going from $25 million in 2017 to $93 million in 2019.
Things seemed to be looking up. But 2020 came around, and everything changed.
F45 is one of the many businesses that COVID-19 impacted. By the end of 2020, F45's revenue went from almost $100 million to $82 million.
Months shy of going public, Rob Deutch resigned as the company's CEO. He remained a shareholder but decided it was best if he simply watched the business from afar. To Deutch’s surprise, F45 still went ahead with the IPO, appearing on the NYSE at a valuation of $2 billion.
Things didn't go as planned. Several months after going public, the company's stock price fell to a jaw-dropping 88%—from $16 per share to $1.75 per share.
In under a year, F45’s forecasted revenue dropped from $275 million to $130 million and adjusted EBITDA guidance from $90 million to $30 million. The massive loss crushed F45's plans of expansion to dust.
To make things worse, the company's chief executive and chairman, Adam Gilchrist, stepped down as president.
Following his departure, shares plummeted more than 60%. The event triggered multiple heavy class action lawsuits from dozens of investors, stating that F45 had issued misleading business information to make the company appear more stable than it is.
Struggling to stay afloat, the company was forced to dismiss around 110 employees—45% of the company's workforce.
Today, F45 stands at a valuation of $240.37 million, a far cry from its $2 billion valuation in 2020.
F45's collapse spurred many of its investors to offload their shares. Among these investors is Mark Wahlberg.
Between March 17 to April 26, he sold nearly 1 million shares of F45 stock. He still holds around 1.60 million shares but is planning on selling them soon.
Despite this, Mark Wahlberg remained a strong supporter of F45. He continues to post about the center to his 20-some million followers on Instagram, stating that it's the "best of the best."
In an interview with Fox, Wahlberg talked about the value of F45 and is urging veterans to become operators and owners of F45 centers to further improve the program.
Cash-draining celebrity deals, equipment purchases, and legal battles left F45 drowning in debts of $60 million by the end of June 2022.
F45's IPO failure stemmed from two events: COVID-19 and unfavourable market conditions.
"COVID decimated the business," said Gilchrist. "The training model we've built out was phenomenal, but getting through two years of COVID hasn't been easy for any business."
It's important to note that F45 wasn't the only franchise affected by the pandemic. According to a report provided by the Global Health & Fitness Association (IHRSA), the US fitness club industry lost upwards of $20 billion in 2020 and is still struggling to stay afloat even after the fact. Many of these companies required cash injections to remain in business—including F45.
Apart from COVID, F45 offered little details about where it really went wrong. However, the company did say that the current market conditions made it increasingly hard for fitness franchises to get loans. Because of this, F45 couldn't sustain its old business model and thus couldn’t produce the same revenue it had before.
F45 took a beating at the IPO, but where does it stand with the public? Is it still as popular as it was back in its early days?
The short answer to this question is no. Though it's undeniably one of the biggest fitness franchises in the world, it's not as frequently talked about today as it was back then.
With more and more companies developing unique fitness strategies and formats, F45's 45-minute high-intensity training format was nothing special. And with inflation on the rise, people can no longer justify a $169.99 per month gym membership for a 45-minute workout.
F45's appeal stemmed from its cult-like high-energy environment. Yet, people started to complain about how harshly instructors would push their members. The recurring advice of "push through the pain" may help with some, but not with others. People have seriously injured themselves from pushing too hard at the behest of trainers.
Other members also said that there's little guidance offered by instructions. Most of the time, members are left to follow along with a TV during class. There's also the fact that F45 warmups are around two to three minutes long, which isn't enough time to adequately prepare the body for an unforgiving training session.
F45 has many happy customers around the world. But it does have its fair share of unhappy customers, too, with stories pointing to a lack of consistency, poor approach to safety, and bad trainers.
Despite the massive loss F45 has endured over the past few years, the company continues to keep its head high.
F45 doesn't have as many customers as it has before if its revenue is anything to go by. If such loss continues, F45 may announce bankruptcy and shut down the franchise.
Currently, F45 is being overtaken by Peloton and Orangetheory Fitness. Investors have their eyes on future developments and are eager to see how F45 will rise to the top, but things aren't looking too good for F45 right now.
Due to F45’s recent net losses, investors may want to think twice when investing in F45 stock. The enterprise has some significant assets, but further losses shouldn't be written off entirely.
As of 2023, F45 has a $271.5 million market capitalisation. Its price-to-earnings ratio appears to be quite poor, with a -45.3% profit margin over the last 12 months. According to analysts, F45's per share is expected to reach $-0.947 for the current fiscal year.
The good news is that F45 just closed a $90 million subordinated debt facility provided by existing investors of the Kennedy Lewis Management LP.
Several board members resigned at the close of the deal, but they were immediately replaced with new independent board members. Gene Davis, CEO and chairman of PIRINATE Consulting Group, LLC, was appointed chairman of the board.
Other board members include Ray Wallander, Lisa Gavales, Timothy Bernlohr, and Steven Scheiwe. Mark Wahlberg remains to be F45's investor and brand ambassador.
Bob Madore was named as F45's interim CFO after former CFO Chris Payne left the company to address family issues in Australia. The CFO position has been open since November 2022.
F45 is still fighting a $20 million lawsuit from David Beckham and Greg Norman. Allegedly, the company didn’t follow through with its commitment to pay them in cash in exchange for promoting the brand.
It’s also been reported that several F45 centers either went into liquidation or sold gym equipment for incredibly cheap online to stay in business.
F45 chapter of success was cut short with the rise of the pandemic. However, not all hope is lost. With new members on the team, F45 may still have a chance to redeem itself. Apart from the financial lawsuits, F45 doesn't have a major controversy to its name. It still has a huge presence online, so it's unlikely to disappear anytime soon.
The information in this article is well-researched and factual. Still, it contains opinions also, and IT IS NOT FINANCIAL ADVICE and should not be interpreted as such, do not make any financial decisions based on the information in this article; we are not financial advisors. We are journalists. You should always consult with a professional before making any investment decisions. We hold no stock or interests in any of the Companies discussed on this website/app.
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