If budget operators are disciplined, they may interest the investment community
“The segment making the most noise at the moment is the budget sector. There has always been good latent demand for a truly budget offering in the UK”
For the larger groups such as Cannons,
Esporta, Fitness First, Holmes Place and LA Fitness, the answer appeared to be private equity. The belief was that the stock market was far too short-term, and that private equity had a greater appreciation of the fi tness industry’s long- term potential. However, we believe that for some operators this was more a case of looking for somebody to blame, rather than appreciating that the market was a
very different place from what it was in the 1980s and early 1990s: the trading climate was changing, competition was increasing, clubs could no longer charge the same level of joining fees, rents were going up, and these pressures were not temporary. Private equity in some cases worked, but in others all it did was overburden companies with debt – a situation exacerbated by the credit crisis. It is perhaps no coincidence that
Esporta and Holmes Place have been subsumed by Virgin Active – the one group that didn’t indulge in the land grab 10–15 years ago, and that wasn’t quoted on the market.
BUDGET POTENTIAL So, more than a decade on from the heyday of the quoted health and fi tness sector, how likely are we ever to see a listed operator again?
This was no doubt the question asked Low property costs helped budget gyms January 2013 © Cybertrek 2013
by énergie CEO Jan Spaticchia when he looked to IPO énergie earlier this year. Given that énergie ultimately withdrew from its prospective IPO, the answer would appear to be ‘never’. However, we believe that this needn’t be the case. While not wishing to focus too much on énergie, the reality was that stock market sentiment deteriorated just at
the time it was looking to fl oat. At the same time, the company’s size restricted the potential investor base. Furthermore, énergie is not straightforward, as it’s a combination of franchised and owned health and fi tness clubs. Therefore, we don’t necessarily view énergie’s experience as an indication of the market’s willingness to re-embrace the health and fi tness sector.
The segment of the health and fi tness club industry making the most noise at the moment is the budget sector. In our opinion, there has always been good latent demand for a truly budget offering in the UK. The problem was the availability of the right property at the right price. One of the few positives to come out of the recession and credit crunch is the increased availability of property at reasonable rents. This has enabled those companies with access to capital to accelerate the development of their estates. In turn, this has helped improve their respective covenants. The Gym Group and Pure Gym have been major benefi ciaries of this dynamic. The challenge for both groups – and the other budget operators – will be to maintain their discipline as far as property is concerned. They need to avoid the mistakes the industry made
Read Health Club Management online at
healthclubmanagement.co.uk/digital 53
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