After years of pursuing a specific type of reinvention of boutique fitness — one in which consumers could sample from a city’s various work-out offerings at the click of a button, rather than purchase memberships to specific studios — ClassPass’ journey as an independent would-be disruptor is over.
ClassPass announced on Wednesday that it has been acquired by Mindbody, a business-to-business software company that helps fitness studios and spas manage their bookings. ClassPass and Mindbody declined to comment on the value of the deal.
Mindbody also has disclosed a $500 million strategic investment from the growth arm of global asset manager Sixth Street, which has backed former startups like Airbnb and Sprinklr. That capital will not go towards funding the acquisition, the company says, as the deal is being done entirely with Mindbody stock.
Josh McCarter, the CEO of Mindbody, will lead the combined company following ClassPass' acquisition.
Mindbody, Inc.“Consumers that have been separated from their wellness communities are eager to get back in,” Mindbody CEO Josh McCarter tells Forbes. “What better way than to bring the largest player in B2B [wellness] SaaS and the huge network of wellness businesses together with the largest player in 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. Users subscribed to receive virtual tokens redeemable for classes of different values, and then booked those classes on the platform, replacing a monthly gym membership with ClassPass’ network of boutiques. For business owners, the app was supposed to drive more business by helping to fill classes and drive new customers, in theory at least.
Covid-19 and months of lockdown changed all that. ClassPass’ revenues fell by as much as 95% as it laid off or furloughed half of its staff in April 2020. In an interview, Fritz Lanman, one of the company’s first investors and formerly its executive chairman, who replaced Kadakia as CEO in 2017, said the company had deliberately frozen sales in the early weeks of the pandemic. He claimed the business has since bounced back, without providing specific sales figures, but noted that ClassPass had “hundreds of thousands of users,” with 90% paying for recurring revenue plans. (Back-of-the-envelope math that assumes that most ClassPass customers choose its second-tier $49 per month plan would imply revenue of at least $10 million.)
ClassPass previously raised at least $280 million from private investors, according to data from PitchBook, including a $285 million Series E in January 2020 that valued the company at $1 billion in exchange for giving up more than one-quarter of its equity. Given the pandemic’s effect on its business, it would seem a surprise that ClassPass sold for more than that valuation. But in a written statement, Lanman implied the company could have exceeded it. “Over the past year, ClassPass has considered many paths forward including independent options that valued our business at a significant uptick since our previously confirmed January 2020 valuation of over $1 billion,” he wrote.
Investors in ClassPass are remaining shareholders of the new combined company under Mindbody, Lanman also claims. “No ClassPass investor is cashing out,” he told Forbes. “Apax Partners, L Catterton, Temasek, Google Ventures [now known as GV], General Catalyst, Thrive [Capital]. All these top VCs that ClassPass has are endorsing this deal, effectively, by saying, ‘Hey, we want to own equity in the combined business.’”
The next unanswered question: how Vista Equity Partners values Mindbody, the business founded in 2000, which it acquired for $1.9 billion in February 2019, four years after the company went public in a rocky offering. In May, Bloomberg reported that Mindbody and ClassPass had held “merger” talks, including about going public again as a combined company. 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 serve as president of ClassPass and Mindbody’s Marketplace unit after the acquisition. Kadakia, once the face of ClassPass, will no longer be actively involved. “This has been a decade in the making,” Kadakia said in a conversation with Forbes Executive Vice President Moira Forbes immediately following the acquisition announcement. “We need moments like this to celebrate. For young women especially to know: build any company, build an idea. Women know what women need. We need to keep building companies that solve our own problems.”
Whatever designs Mindbody’s new leadership have for the fitness category will continue to face a challenge from Covid-19. While both companies have helped to provide virtual fitness services, the fitness industry remains in a tough position. Closures of work-out studios — the quantity and diversity of which in part first attracted consumers to ClassPass — were 19% higher in the first quarter of 2021 than in the same period in 2020, according to The Global Health and Fitness Association.
ClassPass itself says it currently employs 400 people — a modest uptick from its halving last spring, but still a far cry from its reported 700-person staff at the pandemic’s start.
