After many years of searching for the idea of creating a new kind of fitness boutiques — one where customers could try the various workout options in a city with the touch of the button, instead of having to purchase memberships to specific gyms -ClassPass has now ceased its quest to be a disruptive force. ClassPass its journey as an independent disruptor in the making is ended.
ClassPass revealed on Wednesday the company has been bought by Mindbody, the business-to-business software firm that helps fitness centers and spas handle their reservations. ClassPass and Mindbody did not comment on the significance of the acquisition.
Mindbody also announced the acquisition of $500 million in strategic investments from the expansion arm of the global investment administrator Sixth Street, which has invested in former startups like Airbnb and Sprinklr. The money will not be used for financing the acquisition, Mindbody claims because the deal is made entirely using Mindbody stock.
Josh McCarter, the CEO of Mindbody, is the CEO of Mindbody. He will be in charge of the new business following ClassPass the acquisition.
“Consumers who were cut off from their wellness community are eager to be brought back into the wellness community,” Mindbody CEO Josh McCarter says to Forbes. “What better way to bring the most dominant player in B2B wellness SaaS and the massive wellness business network together with the biggest participant of B2C?”
At least until March 2020, ClassPass appealed to a certain kind of person who preferred to shop boutique fitness classes a la carte — a busy-with-disposable-income set for whom its charismatic former dancer founder, Payal Kadakia, was a perfect match after founding the business in 2013. Customers who signed up for the service received virtual tokens that could be used to purchase classes of different prices and book those classes through ClassPass, which replaced monthly gym membership by using ClassPass, its network of boutiques. For businesses, it was intended to boost sales through helping take classes and bring on new customers to join, at a minimum.
The Covid-19 outbreak and the months of lockdown have changed everything. ClassPass revenue dropped by more than 95 percent when it cut or laid off half of its employees in April 2020. in an interview, Fritz Lanman, one of the company’s initial investors and its executive chairman who replaced Kadakia as CEO in the year 2017, claimed that it had deliberately frozen sales during the first few days of the outbreak. The company has since recovered with no specific numbers on sales; however, he did say that ClassPass has “hundreds and thousands of customers,” with 90% paying for the recurring revenue plans. (Back-of-the-envelope math that assumes that most ClassPass customers choose it’s second-tier $49 per month schedule would imply revenue of at least $10 million.)
ClassPass was previously able to raise more than $280 million in private investment, as per the data of PitchBook, which included the $ 285 million Series E in January of 2020, which valued the business at $1 billion for the surrender of over one-quarter of the equity. Because of the effects of the virus on the operations, it’s not unsurprising that ClassPass went public for more than the value. In an announcement, Lanman implied the company might have been able to exceed its valuation. “Over the last year, ClassPass has considered many avenues forward, including independent options that value our business at an impressive increase from our previously announced January 2020 value of more than one billion dollars,” the statement reads.
Investors in ClassPass are still shareholders in Mindbody, the newly merged company. Mindbody, Lanman also claims. “No ClassPass investor is cashing out,” he told Forbes. “Apax Partners L Catterton, Apax Partners, Temasek, Google Ventures [now named GV[now GV General Catalyst, Thrive [Capitaland Thrive Capital. All of these most prominent VCs that ClassPass is working with are announcing the deal in the form of ‘Hey, we’d like to hold an equity stake in the new company.'”
The second unanswered question is what Vista Equity Partners values Mindbody, the company founded in 2000 and which it bought in February 2019 for $1.9 billion in February 2019 in the four years following the company was listed in a controversial offering. The company went public in May. Bloomberg published that Mindbody and ClassPass have held “merger” discussions, which included the possibility of going public again as a combined entity. In an interview, McCarter said the company’s intention was always to acquire ClassPass, adding that Mindbody’s market value carried a higher multiple on sales as a software-as-a-service business versus a more consumer-focused one like ClassPass.
Lanman will become President for ClassPass as well as Mindbody’s Marketplace unit following the acquisition. Kadakia, who was known as the spokesperson for ClassPass and Mindbody’s Marketplace, will no longer be involved. “This was ten years of work,” Kadakia said in an interview discussing a conversation with Forbes Chief Executive Officer Moira Forbes immediately after the announcement about the acquisition. “We have events like this one to be celebrated. Young women in particular need to understand: build a business, develop an idea. Women know what women want. We need to continue building businesses that can solve our issues.”
Whatever visions Mindbody’s new leadership team has for fitness will be up against the challenge of Covid-19. Although both companies have contributed to providing online fitness services, the fitness industry is complex. Closures of fitness gyms and fitness centers — the sheer number and variety of which first attracted people to ClassPass -was 19% more during the initial quarter of 2021 than the same period in 2020, according to the Global Health and Fitness Association.
ClassPass claims that it employs 400 people at presentan increase of just a few percent from the halving it saw last spring; however, it’s far away from the 700-person workforce at the time of the outbreak.