Fitness investments: Working their way back to health

Investing in fitness clubs is nothing new. An initial health craze saw gym clubs and chains spring up prior to the downturn, a number of them with private equity backing. Two of the largest chains in the UK, LA Fitness and Fitness First, both attracted private equity funding in 2005, a trend paralleled around Europe.

In Norway, for example, fitness club chain SATS was acquired by Nordic Capital in 2002 and sold on to Tryg in Denmark for SEK 1.6bn in December 2006. Its main rival, Elixia, is still owned by Norwegian buyout house Norvestor, which acquired the business in 2006, while in France, 21 Partners acquired Club Med Gym in 2008.

Following the downturn, private equity firms seem to agree now is the time to reinvigorate their initial foray into the market and back both new and existing investments in the recreational health sector.

"Having survived the downturn, gyms are seeing membership levels stabilise and operators remain positive about the long-term demand for health club membership," states Alistair Brew of Octopus Ventures, which has recently supported Gymbox's expansion.

Government campaigns advocating health and fitness, combined with regular media coverage of the subject, seems to have convinced a growing number of people to be more aware of their health, training and fitness.

As the economy recovers, consumers will have more disposable income, meaning there is a growing pool of potential fitness-conscious clients with spare money in their pockets for the gyms to entice. Now seems an ideal time to capitalise on this and for gyms to grow their market share through expansion to new sites. "For a gym, proximity to a potential pool of clients (for example, an office complex) is a determining factor in choosing new site locations," observes Brew.

The effects of the downturn on real estate have also played into the hands of gyms with Brew adding: "It is a good time for gym expansion as many landlords, who have taken a hit in the downturn, are now looking to grant new leases to operators with a good business model which will offer a strong covenant."

Backers are indeed taking advantage of the opportunity. In the past week, Octopus Capital has pumped £1.3m into Gymbox for two new sites to built in 2010, specifically in London but with an eye to expand further across the UK.

Meanwhile, Graphite Capital has supported high-end gym portfolio company The Third Space's £2m expansion plans to build a second London gym, having originally acquired a majority stake in the company in 2007 in a €22m buyout of the business.

The fitness space, with its melange of players, ranging from no-frills to luxury top-end and concept health centres, has survived the downturn. Private equity is no newcomer to the space but, as interest in the sector grows, companies need to ensure they stand out from the pack.

"It is important to be clear about what differentiates your gym from others as it remains a highly competitive market place," concludes Brew.

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• Topics
• Buyouts
• Expansion
• Healthcare
• Nordic Capital
• Octopus Ventures