‘They bit off more than they could chew’:F45 founder weighs in on turmoil

One of the founders of the embattled Australian fitness group F45 says a combination of COVID and its rash expansion plans - backed by celebrity investor and board member Mark Wahlberg - may have been its undoing.

F45 revealed this week that its financiers had put a brake on expansion plans,triggering the departure of its chief executive and forcing the group to slash nearly half of its staff and other costs to preserve its cash and stay afloat.

F45 co-founder Luke Istomin left the business in 2016 due to creative differences.

F45 co-founder Luke Istomin left the business in 2016 due to creative differences.Supplied

Luke Istomin - the personal trainer who developed F45’s core regime of 45-minute functional high-intensity interval and circuit training classes based on a motto of “no mirrors,no microphones,no egos” - says he doesn’t think the company ever foresaw the problem it would have with rapid expansion.

“With a bit of money they were making at the time,and the plan to grow rapidly,very rapidly,I think they bit off more than they can chew,” Istomin,who co-founded the company with Rob Deutsch in 2013,said.

He left F45 in 2016 over creative differences and has since set up his own fitness business franchise,Reunion Training,which has struggled with the other significant problem F45 would have been dealing with:COVID.

“The actual model of training that I’ve built out has been phenomenal. But unfortunately,the harsh reality of trying to get through two years of COVID hasn’t been kind for a startup business,” Istomin said.

“We just started getting traction,people coming back to work. And then last week,people got the orders to stay at home and work from home again. So,we have seen that big drop off in memberships or,people working from home again.”

F45 said this week that $US250 million ($357 million) worth of previously announced lending facilities to fund franchisee expansion “will not be available” and said market dynamics meant franchisees were also having trouble finding funding to develop new operations.

F45 also received a waiver from its banks for any potential loan defaults in the coming months.

Wahlberg has not backed away from the company. He posted a short video to his 19 million Instagram followers on Friday morning AEST in front of an F45 centre in the US with the message:“(At) 51 I’m still doing it. F45,check it out.”

The company said redundancy costs - including a cash payout of more than $US7 million to departing chief executive Adam Gilchrist (not the cricketer) - would cost it up to $US12 million.

Gilchrist’s payment includes the agreement that he does not solicit an offer to take F45 private for at least 12 months.

F45 had less than $US14 million in cash at the end of March this year,and has yet to say how these payouts will affect it. The company’s chief financial officer is also due to receive a $US2.4 million retention payment from F45 on October 15 this year,or earlier if he is let go by the company.

F45 said that its revolving loan was still in place,and plans to update the market on its cash reserves at its June quarter update next month.

The US-traded F45 stock rebounded overnight,up US50c,or 37 per cent,to $US1.85,but it is a fraction of the $US16 that investors paid in the initial public offering (IPO) just a year ago.

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Colin Kruger is a senior business reporter for the Sydney Morning Herald and The Age.

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