M&A Arb Update: FXLV Going Private

Update on our trade notes from the FXLV/KLIM take private

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TL;DR

• The take-private of FXLV did not happen and most likely will not happen

• Either management hate the price, or they didn’t want to work with KLIM as an owner

• FXLV opted to close a new debt facility to have fund operations

• Fitness is not in trouble, FXLV is just terrible at managing a fitness franchise

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A Revisit of FXLV Take Private Trade

On October 10th, 2022, I released our thoughts on the F45 Fitness FXLV 0.00%↑ take private by Kennedy Lewis Investment Management. I outlined how I was skeptical about the deal going through but how setting up the trade could produce returns.

To see my original thoughts, click the link below.

F45 (FXLV) M&A Arbitrage Play

Not more than two days later, the PUT position of the trade was up 80% while the equity leg was down a modest ~3.5%.

Paul Cerro @paulcerro

PUT option contracts from how we thought about this trade structure are already marked up 80% from Monday open. If you haven't yet, take a look at our arb trade $FXLV

Cedar Grove Capital Management @cedargrovecm

On 9/30, Kennedy Lewis Investment Management offered to take F45 Training $FXLV private at $4.00 a share Stock closed Friday at $3.45 implying a 70% chance of completion. Take a look at our thoughts on how we're structuring a trade to benefit a decision https://t.co/2YtdPeOgw6

But what happened with this deal? Well, a few things for sure happened but why that happened is what’s interesting.

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“It’s Complicated”

The original deal was supposed to be KLIM, with an already significant stake in FXLV, buying out the rest of the company in a take-private for a significant premium. However, I believed that the deal wasn’t going to go through because management didn’t want to come to terms with just how much the value of the company had cratered and admit defeat by taking the buyout.

So what did they do instead? On February 15h, FXLV announced that it just raised a $90 million debt facility that was actually led by KLIM! FXLV said that the fund would be used for, among other things, general corporate purposes and a partial paydown of the company’s existing senior secured revolving credit facility with JPM.

However, what’s hilarious is the statement that came from Darren Richman, the Co-founder of KLIM.

“We’re pleased to deepen our partnership with F45, an innovator with a differentiated brand that is uniquely positioned to capitalize on the growing trend of consumers prioritizing health and fitness in their daily lives. As long-time investors in F45, we have a deep understanding of, and continued confidence in, the business and the opportunity ahead for F45 as a disruptor in the fitness space.”

I read this as the company didn’t want to be taken private at that price or if they did, they didn’t want KLIM to be the owner of them.

So the only real alternative was to raise money another way to keep the lights on and this is what they decided on. The added aspect of this debt facility was that upon its completion, three board members resigned and were replaced by new independent board members.

Marky Mark was still there along with the other remaining board members. While investors initially saw the news as a positive, the price quickly reflected the little confidence that management could navigate all the macro issues at hand.

What I don’t want people to think is that fitness is in trouble. This is F45 being in trouble, not the fitness industry. To prove this, take a look at other public fitness companies (not PTON 0.00%↑) and how they've performed over the same time.

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Bottom Line

FXLV management is pretty much in survivor mode. It’s dealing with plenty of lawsuits from other celebrities and investors.

Even franchisees are fed up with the lack of support from the parent company despite members of the brand like the type of classes that are taught in a convenient 45 minutes.

This one is a dud, and I wouldn’t touch it at all unless it drops even further and I purchase it as purely a speculative take-private opportunity above what happened with KLIM.

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Anyways, thanks for stopping by. For those of you that don’t know, I do run another newsletter for our private side of the business through

Cedar Grove Capital Holdings

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Why I Passed On A Six-Figure SDE Net Income Business

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Until next time,

Paul Cerro | Cedar Grove Capital

Personal Twitter: @paulcerro

Fund Twitter: @cedargrovecm

HoldCo Twitter: @cedargrovech

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Disclaimer: I/we (“Cedar Grove Capital”) currently do not have a stock, option, or similar derivative position in F45 Fitness (FXLV) at the time of writing this article.

All information provided herein by Cedar Grove Capital Management, LLC (“Cedar Grove Capital”) is for informational purposes only and does not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security. An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private placement memorandum and associated documents.

Cedar Grove Capital may change its views about or its investment positions in any of the securities mentioned in this document at any time, for any reason or no reason. Cedar Grove Capital may buy, sell, or otherwise change the form or substance of any of its investments. Cedar Grove Capital disclaims any obligation to notify the market of any such changes.

The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior written consent of Cedar Grove Capital. The information in this material is only current as of the date indicated and may be superseded by subsequent market events or for other reasons. Statements concerning financial market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only current opinions of Cedar Grove Capital which are subject to change and which Cedar Grove Capital does not undertake to update. Due to, among other things, the volatile nature of the markets, and an investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before making any investment.