Good morning, PE Hubsters! Rafael Canton here with the US edition of the Wire from the New York newsroom.

First, we will work up a sweat with a look at boutique fitness gyms and private equity’s interest in the subsector with thoughts from L Catterton, Princeton Equity Group and Baird.

Then, we have thoughts from West Monroe on the emergence of DeepSeek and what impact that has on private equity.

Finally, we have a chat with Sarah Kitchell, a partner at law firm McDermott Will & Emery about the concern around increased state-level regulatory scrutiny for healthcare investments.

Community keeps customers

Boutique fitness is a piece of the overall fitness sector, but two recent deals hint at potential private equity interest. In January, Princeton Equity Group took a minority stake in Barry’s Bootcamp, a boutique fitness studio chain. And in September, L Catterton acquired Solidcore, a fitness studio operator.

To learn more about the boutique fitness space, I caught up with Marc Magliacano, a managing partner at L Catterton; James Waskovich, co-founder and a managing partner at Princeton Equity Group; and John Bastian, a director in Baird’s global consumer investment banking group.

There were 50-plus global M&A deals in multi-fitness the past year, with three of those deals involving boutique fitness. Magliacano said the right studio fitness companies have all the essentials of becoming a high-quality investment. They have good return on investment, good customer retention and lifetime value. But another piece of the equation is about creating emotional and community connectivity with their members.

“When you drive loyalty, you can drive price. And therefore revenue per member and lifetime value,” he added.

The sense of community keeps customers coming back. Waskovich told PE Hub almost half of Barry’s revenue comes from customers that have been using the service for five or more years.

There are some challenges to the boutique fitness space. “[Due to the pandemic] a lot of people have moved, a lot of people have migrated and they’re just not seeing the traffic that you might expect,” Bastian said. “Some broad brands have not reached pre-pandemic traffic levels as users’ interests have changed to different types of modalities.”

Another challenge is being up to date with the ever-changing fitness model. Consumers’ lifestyles are constantly changing, so boutique fitness studios have to adjust.

“The studios and the concepts that have struggled over time are the ones that failed to evolve with both fitness trends as well as mixing up the execution in a way where people can continue to both have fun and get results,” Magliacano added. “As an investor you want to make sure that your concept doesn’t lose its relevancy. The secret sauce with respect to studio success is continuing to be on your front foot as fitness trends and desires continue to evolve at the consumer level.”

Disrupting AI

Chinese AI research lab DeepSeek and its R1 model dominated headlines after its chatbot app rose to the top of the app download charts of Apple and Google Play. DeepSeek’s low cost has been seen as a disruptor in the generative AI space.

Though there’s much interest in how the emergence of DeepSeek can impact investing in AI-related companies, there shouldn’t be much investing in the space from private equity. It’s more of a strategy for venture capital firms. “Private equity is not going to ever touch the Large Language Models (LLMs),” Keith Campbell, West Monroe’s global lead of mergers and acquisitions told PE Hub. “They’re really looking at how to value broadly on AI adoption.”

Campbell said that if a PE firm is looking to invest in AI, they’re trying to find software companies. “PE is looking at the ecosystem around that growth for service providers or companies that can capture that revenue,” he added. Some examples are data center infrastructure or energy demands that come with compute and power needs.

Campbell says what’s more practical and prevalent to all private equity investors is if the emergence of a cheaper option like DeepSeek can bring down the cost of the LLM for software companies.

“Private equity has invested a ton in software companies the last seven or eight years,” Campbell said. “There was a lot of discussion on, is the gross margin and cost profile of the software companies going to change? Because they all have to basically embed a large language model in their software,” he added.

Regulatory scrutiny

Private equity healthcare dealmakers are expecting less regulatory scrutiny from Andrew Ferguson, the new commissioner of the Federal Trade Commission. However, there is concern that less federal-level scrutiny may cause state-level lawmakers that have already opposed some healthcare investments in the past to crack down even more.

To learn more about the topic, PE Hub reporter John R. Fischer spoke with Sarah Kitchell, a partner with law firm McDermott Will & Emery. Here’s a sample of Kitchell’s thoughts.

How are federal, state and local regulatory legislation affecting healthcare investing?

There’s a lot of optimism and desire to do transactions but still uncertainty around completing deals, especially since much of healthcare is on a local level. A lot of state laws are creating longer timeframes for deals, and the healthcare transaction laws are putting longer timeframes on the notice requirements.

With more deals in the pipeline, regulators have more on their plates to accomplish in addition to grappling with everything that may come down from President Donald Trump’s administration. They are trying to understand the implications of grants and loans being put on pause, so there’s a little uncertainty at the regulator level as well as in the industry. There are a number of deals in the pipeline but investors should be thinking about how the regulatory aspects could affect the timeframes and certainty of deals.

The new FTC chair is expected to be less scrutinous of healthcare dealmaking. What possible implications could this have on the state level?

There’s a lot more data analytics and cost trends that regulators are incorporating along with these transaction notice laws. There’s also additional reporting that they may conduct on the transaction once the deal is done.

States have their own antitrust powers, oftentimes housed by the attorney general, for determining if a transaction will affect their individual marketplaces in a negative way. That’s where you see a lot of these healthcare transaction notice laws come in. They generally impose more of a waiting period for a transaction and require the involved parties to affirmatively provide information, whether it’s to the attorney general’s office or a state regulatory agency, to describe the transaction’s impact on cost and marketplace access, so the regulator has more information and time to assess the deal and take action should they feel it’s necessary.

But these healthcare transaction notice laws were popping up before the change in administration. Massachusetts has had one in place since 2013 and expanded it in January 2025. It’s been around a while to give that space to the regulators to understand and take action. New York also proposed one in January that looks a lot like Massachusetts.

Read on for more of Kitchell’s thoughts on if other blue states will try to roll out healthcare transaction notice laws and her advice for investors navigating state regulatory hurdles.

If you have any questions, thoughts, or want to chat about deals in the tech, consumer or sports sectors, please email me at rafael.c@pei.group.

Tomorrow, Nina Lindholm will be with you for the Europe edition of the Wire and Michael Schoeck will bring you the US edition.

Cheers,

Rafael