Good Morning! LBOs look to be making a comeback with Macy’s getting a $5.8 billion buyout offer. Shohei Ohtani secured a record $700 million MLB contract. The U.S. approved the first gene-editing treatment - this time for sickle cell disease. We’re a step closer to the soft landing, with the U.S. unemployment rate falling to 3.7% last month. Plus how to embrace productive paranoia for business success, and how to shake off your constant validation craving at work.

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_{SQUEEZ OF THE DAY}

Pilates and Penniless

If you’re wondering what your MD’s wife is up to - she might have joined thousands of other suburban moms and became a bankrupt franchisee of a boutique fitness club.

Xponential was founded by Anthony Geisler alongside private equity firm TPG - and it’s become the largest fitness company in the U.S. You might know it from its other brands like Pure Barre, Rumble, CycleBar, or Club Pilates. And they’ve built up a cult following among wealthy suburban moms.

Xponential and TPG pitched a unique business model - instead of owning all these studios, they franchised them out like McDonald's. And Xponential began pitching to suburban moms and creatine-popping dads. They convinced them to ditch their 9-to-5s or 401(k) savings to buy a Club Pilates or CycleBar franchise.

They said for a couple of hundred grand, they’d be raking in $400k/year…or more. 

But the franchisees say Xponential pulled a fast one on them. They accuse Xponential of fudging the numbers, inflating revenue, and lowballing costs. And while Xponential sold them on becoming investors, it turned out that managing a fitness studio is a lot of work, with no guarantee of success.

Takeaway: Today, many of the company’s franchisees who were once the brand’s biggest cult followers - have either lost their retirement savings or even declared bankruptcy.

As Xponential confronts increased scrutiny and a backlash from disillusioned franchisees, the sustainability and ethics of its business model and founder Anthony Geisler are in question. The stock is down 53% YTD with 16% short interest. Looks like those boutique fitness classes might need to start doing some financial yoga to make it through the end of 2024.

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_HEADLINES

Top Reads

• Macy’s receives $5.8 billion buyout offer (CNBC)

• What a soft landing looks like (YF)

• Citi’s buyout banker sees M&A escaping a tough market (BB)

• Shohei Ohtani agreed to record $700 million MLB contract (CNBC)

• November job market shows labor market is flourishing (Axios)

• Here’s where jobs are for November 2023 in one chart (CNBC)

• How the Big 5 airlines came to dominate the skies (Axios)

• U.S. approves first gene-editing treatment (CNBC)

• Investors should prepare for a long period of volatility (YF)

• Inflation expectations plunge in University of Michigan survey (CNBC)

• U.S. unemployment rate fell to 3.7% in November (Axios)

• Why the U.S. economy has powered ahead of other rich countries (CNN)

_{CAPITAL PULSE}

Markets Rundown

Stocks closed higher, and the S&P 500 posted its 6th-straight week of gains.

Movers & Shakers

• (+) Paramount ($PARA) +12% after sales chatter mounts.

• (+) Lululemon ($LULU) +5% after posting better-than-expected earnings.

• (–) HashiCorp ($HCP) -16% after a downgrade for the software company by Cowen.

Private Dealmaking

• Carrier sold its building security business to Honeywell for $4.95 billion 

• KKR bought Smart Metering Systems, an energy infrastructure firm, for $1.6 billion

• Cortex, an atrial fibrillation treatment, raised $90 million

• Scalable Capital, a digital investment company, raised $65 million

• Sarvam AI, an Indian AI startup, raised $41 million

• Air Space Intelligence, an AI-powered air operations system, raised $34 million

For more PE, VC & M&A deals, subscribe to our Buysiders newsletter.

_{BOOK OF THE DAY}

Empathy Economics

When President Biden announced Janet Yellen as his choice for secretary of the treasury, it was the peak moment of a remarkable life. Not only the first woman in the more than two-century history of the office, Yellen is the first person to hold all three top economic policy jobs in the United States: chair of both the Federal Reserve and the President’s Council of Economic Advisors as well as treasury secretary.

Through Owen Ullmann’s intimate portrait, we glean two remarkable aspects of Yellen’s approach to economics: first, her commitment to putting those on the bottom half of the economic ladder at the center of economic policy, and employing forward-looking ideas to use the power of government to create a more prosperous, productive life for everyone.

And second, her ability to maintain humanity in a Washington policy world where fierce political combat casts others as either friend or enemy, never more so than in our current age of polarization.

As Ullmann takes us through Yellen’s life and work, we clearly see her brilliance and meticulous preparation. What stands out, though, is Yellen as an icon of progress—the “Ruth Bader Ginsburg of economics”—a superb-yet-different kind of player in a cold, male-dominated profession that all too often devises policies to benefit the already well-to-do.

With humility and compassion as her trademarks, we see the influence of Yellen’s father, a physician whose pay-what-you-can philosophy meant never turning anyone away. That compassion, rooted in her family life in Brooklyn, now extends across our entire country.

“An enlightening study of a trailblazing yet ‘unassuming’ public figure.”

_{DAILY VISUAL}

How High Mortgage Rates Stalled the Housing Market

US listings of homes for sale

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_{DAILY ACUMEN}

Backdoor Roth IRA

The Backdoor Roth strategy provides a straightforward workaround for high-income individuals to bypass the conventional income restrictions associated with a Roth IRA.

Here's a breakdown of the process:

1. Contribute the full amount to a Traditional IRA without claiming a deduction on your taxes.

2. Allow a day to pass.

3. Initiate a conversion from a Traditional IRA to a Roth IRA. Contact your custodian for the specific procedure, as it may vary among custodians.

4. By foregoing the tax deduction on your initial contribution and observing a brief waiting period before the conversion, you should be able to execute this strategy without incurring any tax obligations.

_{ENLIGHTENMENT}

Short Squeez Picks

• Overcoming your need for constant validation at work

• How to cultivate productive paranoia

• The 10 best non-fiction books of 2023

• How to do a SWOT analysis in 2024 for business and career growth

• The psychology of why we work too much

_{MEME-A-PALOOZA}

Memes of the Day