Founded in 2005, Fitness World has grown to become one of Europe’s leading value fitness businesses. As of 2019, the company had over 230 gyms in Denmark, Switzerland and Poland and more than 600,000 members. Harris Williams recently advised Fitness World, a portfolio company of FSN Capital, on its sale to PureGym, a portfolio company of Leonard Green and Partners (LGP) and the U.K.’s largest gym operator.
Here, Ed Arkus, a managing director in the Consumer Group, shares his thoughts on what made Fitness World an exceptional investment opportunity, as well as his advice for other investors interested in this space.
What makes this an appealing space for buyers and investors?
Consumers are increasingly focused on their health and well-being, and more of them are spending a growing proportion of their disposable income within this market. That translates into a growing health and fitness opportunity, particularly in the value and studio fitness segments. While these segments are seeing the fastest growth, there are also a number of differentiated premium concepts that continue to see strong performance.
Market penetration is growing across the U.S. and Europe, driven predominantly by the value segment. Value operators continue to open new sites at a rapid pace, bringing affordable gyms to a wider, often new, audience. At the same time, the studio segment is driving growth by bringing new and exciting exercise options to the market. Consumers have embraced many of these concepts, particularly in the Personal Training (PT), High-Intensity Interval Training (HIIT) and yoga segments, across which concept differentiation has been most pronounced. Increasingly, we are seeing consumers supplement a value gym membership with the regular use of studios.
The resistance of fitness businesses to the disintermediation happening in other parts of the consumer sector (e.g., retail) is also driving investor interest. Most people continue to prefer going to gyms or studios to exercise versus working out at home. In addition, as health and wellness have become key parts of a consumer’s lifestyle, their spending has become more resilient. There is a historical track record and a future expectation of value fitness and studio segments weathering economic cycles better than other businesses.
The best concepts in the value and studio segments have low-to-mid single-digit same-store-sales (SSS) growth alongside strong return on invested capital (ROIC), either through organic rollout or buy-and-build add-ons. Health and fitness is unique in its built-in defensibility and cycle resilience, as well as its significant organic and whitespace growth. This combination is driving incredibly strong investor interest in the sector.
What made Fitness World particularly appealing to its investors?
Fitness World’s position as one of Europe’s top five value fitness operators made it an attractive platform. In Denmark (where Fitness World operates around 180 clubs), the business has a particularly strong market position with around a 45 percent share by members; in fact, almost one in ten of the Danish population are Fitness World members.
The company has also established a leading position in Switzerland via the acquisition of Basefit in 2018 and a strong foothold in Poland. Both markets are characterized by emerging value segments with a significant opportunity to roll out additional sites. Across all three markets, Fitness World had demonstrated an ability to drive attractive SSS growth as well as strong ROIC. There was also the opportunity to add several new geographies across the Nordics and Central / Eastern Europe through buy-and-build.
What advice do you have for other investors interested in this space?
In the value segment, investors should look for players that can become market leaders in their local geographies—whether that is a region of the U.S. or a particular country in Europe. It’s also important to target the right platform, ideally offering the combination of healthy SSS growth combined with strong ROIC and significant whitespace as well as the opportunity to target growth in new geographies.
For their part, studio concepts need to have the right appeal to the growing audience that uses them (predominantly Generation X, Y (millennial) and Z populations but, for a number of concepts, increasingly baby boomers too). They also need a defensible value proposition; some studio concepts can be easily replicated, making it difficult to maintain premium pricing and longevity. Differentiated fitness programs that catch the imagination of their audience (especially in the PT, HIIT and yoga segments) and have significant white space are most attractive.
Published March 2020