INVESTOR PERSPECTIVE
Virgin Active has been one of the success stories of the fi tness industry in the past decade – and could be an attractive IPO candidate
“There has already been some major merger and acquisition activity in the industry and there may be more to come – this could end in a stock market IPO”
in the past – ie don’t overpay for rents and don’t compromise on property. It doesn’t matter how good the offering is, if the rent is wrong and/or the location is wrong, the fi nancial model collapses. Whether for private equity or quoted market investors, this will be a particular concern. Nevertheless, if budget operators can convince the investment community their approach is disciplined, then the latter should be interested in a segment of the market that appears to offer signifi cant growth potential.
A RESILIENT SECTOR But is there life beyond the budget operators in the health club sector? One of the major attractions of the industry back in the 1990s was its growth potential. With the exception of the budget sector, over the past few years, industry growth has been pedestrian. However, given the state of the economy and the unhelpful advice of many newspapers, which advised people to dump their gym membership when the recession hit, the industry has performed relatively well. Indeed, this addresses one of the major concerns prior to entering the recession: that membership would collapse when consumers came under real economic pressure. This clearly hasn’t happened, and is in large part the result of hard work by operators, engaging more
effectively with members and becoming more involved with the broader health debate, led by ukactive (formerly the FIA). For us, this is a demonstration that the industry’s quality of earnings is higher than many perceive it to be. The success of Virgin Active also
shows that it is not all about the budget sector. Indeed, Virgin Active is one of the success stories of the UK leisure industry over the past decade. CVC took a controlling interest in the company last year, but ultimately we see Virgin Active as an attractive IPO candidate. For a number of the larger operators, the path to the stock market or new investment is made more diffi cult because of their capital structures and property hangovers from yesteryear, rather than the prospects for the industry in
ABOUT THE AUTHOR
Nick Batram is a leisure analyst for Peel Hunt. He has been involved in the investment industry for over 25 years, mostly specialising in small and mid cap leisure companies. Considered a leading health club analyst during the 1990s/2000s, he was involved in the IPO of LA Fitness. Other transactions/ advisory roles included Virgin Active, Holmes Place, Esporta and Roko.
54 Take part in the Health Club Management reader survey:
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Peel Hunt is an independent specialist UK equities small/mid cap broking house offering a traditional full-service corporate broking model. It is highly regarded, being ranked in the top three brokers in the 2012 Extel Survey and having more top fi ve sector rankings than any other broker. Peel Hunt is a partnership and is 75 per cent owned by staff.
January 2013 © Cybertrek 2013
general. In some circumstances, this is also compounded by shareholders being unwilling or unable to take a loss on their original investment. There has already been some major merger and acquisition activity in the industry and there may be more to come – ultimately this could end in a stock market IPO. We don’t believe the quoted equity
market is permanently shut to the health and fi tness industry. Indeed, with the number of quoted leisure companies having more than halved since 2000, there is a shortage of quality listed investment opportunities. However, a stock market fl otation is a long way from being the default next step for operators, as it was around 15 years ago, and we doubt we will ever see a dozen listed health and fi tness operators again. ●
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