Deal in focus: 3i invests €110m in Basic-Fit

Recent years have seen the unprecedented rise of buyout activity in the discount gym market. Bridges Ventures realised a successful partial divestment of The Gym Group in June, reaping a 3.7x money multiple and 50% IRR on the sale to Phoenix Equity Partners for £90-100m. The deal later went on to win the "Venture Exit of the Year" gong at the 2013 unquote" British Private Equity Awards.

Likewise, CCMP Capital acquired Pure Gym in May from Magenta Partners; the Business Growth Fund invested £5m in UK-based Xcercise4less in August; and Nord Holding acquired a 65% stake in German discount gym chain Jumpers Group.

3i has now followed suit and taken part in the €275m management buyout of Basic-Fit, a Netherlands-headquartered operator of low-cost fitness centres.

The firm has acquired a 55% stake in the business for €110m, investing alongside co-founder and CEO Rene Moos and existing management. Moos and co-founder Eric Wilborts reinvested to retain significant minority stakes.

"We think the discount fitness market is attractive as it shows strong growth driven by structural drivers in the consumer market, such as the polarisation of people's spending towards either luxury or cost-effective options and the focus on fitness and wellbeing," says Pieter de Jong, managing director for 3i's Benelux operations. "Basic-Fit plays very well into these trends."

De Jong says investments in the low-cost gym space are attractive because companies operating in the sector are "much less capital-intensive due to a no-frills customer proposition".

Hitting the wall
The buzzing low-cost gym sector is counteracting the steady fall from grace of the more traditional, all-inclusive fitness centre. Notably, BC Partners-backed Fitness First was plagued with debt problems until the GP eventually exited it to Oaktree Capital and Marathon as part of a debt-for-equity swap in March 2012.

In the months prior to the divestment, BC axed Fitness First's core management team in an attempt to prevent the company from sinking under its high-interest loans. The firm had acquired the company in October 2005, in a deal valued at £800m.

Since Oaktree and Marathon's acquisition of the business, the number of Fitness First gyms in the UK alone has fallen from 150 to 84, according to the company's financial statement for 2012. Revenues also fell by 3.3% in 2012 compared with the previous year, from £608.3m to £587.9m.

That being said, TDR Capital acquired high-end leisure and fitness group David Lloyd in September, proving the asset class has yet to completely jump ship when it comes to the upper reaches of Europe's fitness market.

Basic-Fit plans on rolling out additional gyms across Europe and eventually extending its reach further afield internationally. However, 3i will focus its growth plans for the company on Basic-Fit's four existing markets: the Netherlands, Belgium, France and Spain. "We feel there is a lot of growth potential in those countries," says de Jong.

Founded in 2003 and headquartered in Hoofddorp, Basic-Fit currently operates 200 gyms across the Netherlands, Belgium, Spain and France. The majority of its gyms are located in Belgium and the Netherlands, with 95 and 79 fitness centres operating in these countries respectively. Basic-Fit owns 17 clubs in Spain and nine in France.

Membership rates for the company's low-cost gyms start from €15.95. Basic-Fit claims to be the largest fitness centre chain in Europe and currently counts 500,000 members.

De Jong will join Basic-Fit's board of directors alongside 3i partner Robert Van Goethem and director Boris Kawohl.

The firm has also brought in former Pearle and Esprit CEO Ronald van der Vis to take up the role of chairman of Basic-Fit's board of directors.

People
3i - Pieter de Jong, Robert Van Goethem, Boris Kawohl

Advisers
Equity – Allen & Overy, Karine Kodde, Jasper de Jong (Legal); Lazard, Wouter Han (Corporate finance); PwC (Financial due diligence); OC&C (Commercial due diligence).

This deal was originally covered on 21 November 2013

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