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Health Club Management

Health Club Management

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Health Club Management

Health Club Management

features

Finance: The fightback begins

Change is coming, with consolidation likely in the market – especially in the boutique sector. Nadim Meer advises operators how to position themselves for investment

Published in Health Club Management 2020 issue 6
Raising funds can enable operators to invest in growth / JACOB LUND/shutterstock
Raising funds can enable operators to invest in growth / JACOB LUND/shutterstock
Equity funding could drive some of the much-predicted consolidation in the boutique sector

As lockdown restrictions begin to lift, fitness businesses are focusing on navigating the new (socially distanced) landscape and getting a better idea of the impact the pandemic is having on their business model and longer-term financing requirements.

Some will not survive and some will not reopen. However, this will allow other operators space to grow and develop in a market that’s less crowded compared to the pre-COVID landscape.

In terms of sources of finance, operators will need to look for suitable sources of funding that fit their business model – one realistic target for raising capital will be the private equity and private capital community.

While some investment activity is on hold at present, history suggests that following a crisis there is a flight of capital towards private companies. If you add to this the fact that pre-COVID there were many private equity funds sitting on significant amounts of uninvested capital and that – historically – their best returns have been made when investing in the aftermath of a crisis, many private equity investors will be keen to return to the market and deploy capital as soon as possible.

In terms of timing, however, we are unlikely to see much private equity investment before Q4 of this year. Valuations are too uncertain and few investors would be prepared to hand over their cash without having met the management in the flesh.

Although we’re hearing about some deals which have been completed over Zoom, for the majority of investors, this isn’t a substitute for meeting face to face when it comes to the private equity investment world.

This will be challenging news for businesses that are experiencing a cash squeeze, as rent and other payments become payable and the furlough scheme is wound down, however, it does allow those that are better capitalised the luxury of time to plan and position the business for investment.

Get ready for investment
Now is the time to prepare – take a long, hard and dispassionate look at all aspects of your operation. Innovate, improve digital activity and overhaul your strategy, looking ahead three to four years. Do everything you can to position your business as best-in-class.

If a business in the fitness sector makes it through to Q4 this year, it will have done everything it can to reduce costs, manage its cash and ride out the storm. However, in order to raise equity funding, you’ll need to create a credible, sustainable plan for growth, including an information memorandum setting out details of the business, as well as the ways you plan to achieve growth (expanding the digital offering, franchising, licensing, acquisitions and/or opening new sites, for example). You’ll also need financial projections and legal and financial due diligence materials.

Investors will expect a detailed summary of the impact of COVID-19 on the business. Counterintuitively, this is a great opportunity to showcase investability, the strength of the management team, resilience to shock and the ability to adapt, evolve and survive. These are essential components investors look for.

The COVID report should address:
Any immediate action you took to protect the business (eg. rent deals, furlough, adaptive working programmes for staff, VAT, PAYE, business rate deferrals, applications for CBILs, etc.).

How you adjusted your business model and working practices. This may still be evolving, but should be clear by the time you fundraise.

Preparedness for a second lockdown and ability to withstand further shocks.

Customer retention rates after reopening.
Another key consideration will be the need to be realistic about the value of the business now. ‘Top of the market’, full valuation deals, with shareholders selling out completely, are unlikely to be seen for a while. However, less aggressive deal structures that offer investors some form of downside-protection and an element of shared risk will be most common.

This may look unattractive on paper, but if it’s the price to be paid for securing funding to scale up and grow – and to build a war chest that allows the business to thrive and outperform competitors – it may prove to be a wise decision three to four years down the line.

Consolidating the boutique sector
For those in the boutique sector, equity funding could now drive some of the much-predicted consolidation in the sector. There are close to 300 studios and boutique gyms in London alone and the cash constraints caused by COVID-19 will be having an impact.

The logic of bringing a number of boutique brands under one platform, offering best-in-class activity to the same customers, as well as avoiding the margin erosion of ClassPass, may be unstoppable.

Boutiques that emerge from the crisis will find that a strong brand, a compelling online presence, customer loyalty, a robust financial model and a strong management team will all make them attractive to investors, as platforms from which competitors are acquired and roll-outs are executed.

The challenge for boutiques will be to try to be the ones that drive the consolidation rather than being subsumed by it.

Nadim Meer is head of private equity at Mishcon de Reya

Sign up here to get HCM's weekly ezine and every issue of HCM magazine free on digital.
Fallout from the pandemic will see consolidation in the boutique market / JACOB LUND/shutterstock
Fallout from the pandemic will see consolidation in the boutique market / JACOB LUND/shutterstock
https://www.leisureopportunities.co.uk/images/2020/826005_373465.jpg
'Equity funding could drive some of the much-predicted consolidation in the boutique sector' – Nadim Meer on how to attract investment
Nadim Meer, Mishcon de Reya,equity funding
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Diary dates
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17-23 Oct 2020
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Online,
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features

Finance: The fightback begins

Change is coming, with consolidation likely in the market – especially in the boutique sector. Nadim Meer advises operators how to position themselves for investment

Published in Health Club Management 2020 issue 6
Raising funds can enable operators to invest in growth / JACOB LUND/shutterstock
Raising funds can enable operators to invest in growth / JACOB LUND/shutterstock
Equity funding could drive some of the much-predicted consolidation in the boutique sector

As lockdown restrictions begin to lift, fitness businesses are focusing on navigating the new (socially distanced) landscape and getting a better idea of the impact the pandemic is having on their business model and longer-term financing requirements.

Some will not survive and some will not reopen. However, this will allow other operators space to grow and develop in a market that’s less crowded compared to the pre-COVID landscape.

In terms of sources of finance, operators will need to look for suitable sources of funding that fit their business model – one realistic target for raising capital will be the private equity and private capital community.

While some investment activity is on hold at present, history suggests that following a crisis there is a flight of capital towards private companies. If you add to this the fact that pre-COVID there were many private equity funds sitting on significant amounts of uninvested capital and that – historically – their best returns have been made when investing in the aftermath of a crisis, many private equity investors will be keen to return to the market and deploy capital as soon as possible.

In terms of timing, however, we are unlikely to see much private equity investment before Q4 of this year. Valuations are too uncertain and few investors would be prepared to hand over their cash without having met the management in the flesh.

Although we’re hearing about some deals which have been completed over Zoom, for the majority of investors, this isn’t a substitute for meeting face to face when it comes to the private equity investment world.

This will be challenging news for businesses that are experiencing a cash squeeze, as rent and other payments become payable and the furlough scheme is wound down, however, it does allow those that are better capitalised the luxury of time to plan and position the business for investment.

Get ready for investment
Now is the time to prepare – take a long, hard and dispassionate look at all aspects of your operation. Innovate, improve digital activity and overhaul your strategy, looking ahead three to four years. Do everything you can to position your business as best-in-class.

If a business in the fitness sector makes it through to Q4 this year, it will have done everything it can to reduce costs, manage its cash and ride out the storm. However, in order to raise equity funding, you’ll need to create a credible, sustainable plan for growth, including an information memorandum setting out details of the business, as well as the ways you plan to achieve growth (expanding the digital offering, franchising, licensing, acquisitions and/or opening new sites, for example). You’ll also need financial projections and legal and financial due diligence materials.

Investors will expect a detailed summary of the impact of COVID-19 on the business. Counterintuitively, this is a great opportunity to showcase investability, the strength of the management team, resilience to shock and the ability to adapt, evolve and survive. These are essential components investors look for.

The COVID report should address:
Any immediate action you took to protect the business (eg. rent deals, furlough, adaptive working programmes for staff, VAT, PAYE, business rate deferrals, applications for CBILs, etc.).

How you adjusted your business model and working practices. This may still be evolving, but should be clear by the time you fundraise.

Preparedness for a second lockdown and ability to withstand further shocks.

Customer retention rates after reopening.
Another key consideration will be the need to be realistic about the value of the business now. ‘Top of the market’, full valuation deals, with shareholders selling out completely, are unlikely to be seen for a while. However, less aggressive deal structures that offer investors some form of downside-protection and an element of shared risk will be most common.

This may look unattractive on paper, but if it’s the price to be paid for securing funding to scale up and grow – and to build a war chest that allows the business to thrive and outperform competitors – it may prove to be a wise decision three to four years down the line.

Consolidating the boutique sector
For those in the boutique sector, equity funding could now drive some of the much-predicted consolidation in the sector. There are close to 300 studios and boutique gyms in London alone and the cash constraints caused by COVID-19 will be having an impact.

The logic of bringing a number of boutique brands under one platform, offering best-in-class activity to the same customers, as well as avoiding the margin erosion of ClassPass, may be unstoppable.

Boutiques that emerge from the crisis will find that a strong brand, a compelling online presence, customer loyalty, a robust financial model and a strong management team will all make them attractive to investors, as platforms from which competitors are acquired and roll-outs are executed.

The challenge for boutiques will be to try to be the ones that drive the consolidation rather than being subsumed by it.

Nadim Meer is head of private equity at Mishcon de Reya

Sign up here to get HCM's weekly ezine and every issue of HCM magazine free on digital.
Fallout from the pandemic will see consolidation in the boutique market / JACOB LUND/shutterstock
Fallout from the pandemic will see consolidation in the boutique market / JACOB LUND/shutterstock
https://www.leisureopportunities.co.uk/images/2020/826005_373465.jpg
'Equity funding could drive some of the much-predicted consolidation in the boutique sector' – Nadim Meer on how to attract investment
Nadim Meer, Mishcon de Reya,equity funding
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The UK government's 'Rule of Six' has come into force in physical activity facilities today ...
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The UK's physical activity sector has come together to get millions of people active during ...
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A study by Rutgers University has suggested that it could be possible to predict which ...
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The pandemic has thrown a new focus on health, with sales of body composition analysis equipment at an all-time high, as InBody’s Francesca Cooper explains.
Opinion: Gyms add body composition analysis and health screening to their offering following pandemic
Featured supplier news
Featured supplier: CAWS unveils new programme designed to help trainers work with guests recovering from COVID-19
Educational company, CAWS, has launched a new programme to help educate trainers on how to support members recovering from COVID-19.
Featured supplier news
Featured supplier: Speedflex develops new personalised HIIT programme to support the overweight getting into fitness
As the government announced its new obesity strategy to limit the impact of a potential second wave of COVID-19, HIIT specialists, Speedflex are also doing their bit to help tackle the issue.
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A new Zone is here
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A new zone is here for your club, for your members and for you. Read more
More videos:
Company profiles
Company profile: Matrix Fitness
At Matrix Fitness, our goal is to make innovative commercial fitness equipment that stands out ...
Company profiles
Company profile: Crown Sports Lockers
Crown Sports Lockers has designed, crafted and fitted bespoke timber furniture for spas, hotels and ...
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Catalogue Gallery
Click on a catalogue to view it online
Directory
Hydrotherapy / spa fragrances
Kemitron GmbH: Hydrotherapy / spa fragrances
Direct debit solutions
Harlands Group: Direct debit solutions
Flooring
Total Vibration Solutions / TVS Sports Surfaces: Flooring
Wearable technology solutions
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Design consultants
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Red Light Therapy
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Software
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Independent service & maintenance
Servicesport UK Limited: Independent service & maintenance
Exercise equipment
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Property & Tenders
11 - 25 Union St, London SE1 1SD
Bankside Open Spaces Trust
Property & Tenders
Waltham Abbey, Essex
Lee Valley Regional Park Authority
Property & Tenders
Diary dates
07 Oct 2020
Online, Singapore, Singapore
Diary dates
17-23 Oct 2020
Pinggu, Beijing, China
Diary dates
03-06 Nov 2020
Online,
Diary dates
17 Nov 2020
Loughborough University, Loughborough, United Kingdom
Diary dates
27-28 Nov 2020
Athena, Leicester, United Kingdom
Diary dates
02-04 Feb 2021
Ericsson Exhibition Hall, Ricoh Arena, Coventry, United Kingdom
Diary dates
23-26 Feb 2021
IFEMA, Madrid, Spain
Diary dates
03-04 Mar 2021
NEC, Birmingham, United Kingdom
Diary dates
03-06 Jun 2021
Expo Centre & Riviera di Rimini, Italy
Diary dates
16-17 Jun 2021
ExCeL London, London, United Kingdom
Diary dates
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