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Health Club Management

Health Club Management

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UNITING THE WORLD OF FITNESS
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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
People
We believe affordable fitness will be a very substantial part of all significant gym and fitness markets in the future
People
HCM people

Dr Darshan Shah

Next Health: co-founder
Our vision is that health is not the absence of disease but the abundance of vitality
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As a society, we all need to make a conscious effort to be more active and our industry is in the best position to help people do that
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Click on a catalogue to view it online
Directory
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Red Light Therapy
 Red Light Rising: Red Light Therapy
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Property & Tenders
11 - 25 Union St, London SE1 1SD
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Diary dates
03-06 Nov 2020
Online,
Diary dates
12 Nov 2020
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17 Nov 2020
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27-28 Nov 2020
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03-06 Jun 2021
Expo Centre & Riviera di Rimini, Italy
Diary dates
16-17 Jun 2021
ExCeL London, London, United Kingdom
Diary dates
01-07 Dec 2022
tbc, Dunedin, New Zealand
Diary dates

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
Latest News
The UK government has provided a lengthy response to a petition which demanded that gyms ...
Latest News
Gym and health club operators in Germany are believed to be considering joint legal action ...
Latest News
The latest study into the infection rates recorded at gyms has shown that the average ...
Latest News
A new mobile fitness platform delivers personal training sessions to people at home by combining ...
Latest News
Europe's largest gym chain, Basic-Fit, has published its trading update for the first nine months ...
Latest News
Boutique operator, The Refinery E9, has launched a personal trainer (PT) service with a twist, ...
Latest News
Gains made getting people more physically active over the last few years were all but ...
Latest News
Mid Ulster District Council (MUDC) in Northern Ireland has won a landmark VAT case, which ...
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Opinion
promotion
Our world has changed since March and together, we are learning and adapting to how this sector can continue to thrive in this COVID conscious world.
Opinion: Why fitness clubs and facilities need to evolve in a COVID-conscious world
Opinion
promotion
In a post-Covid world, member experience is more important than ever before. Your customers’ expectations have been heightened as the coronavirus continues to dominate our everyday lives.
Opinion: Why member experience is more important now than ever before
Featured supplier news
Featured supplier: Frame launches new, streamlined digital offering, powered by Fisikal
When facing lockdown restrictions, Frame successfully adapted its in-club experience to an online offering for members.
Featured supplier news
Featured supplier: Matrix takes its partnership with Renault Sport racing team up a gear
Matrix Fitness, the commercial brand of Johnson Health Tech, has announced the renewal of its long term partnership with the Renault F1 Team.
Video Gallery
A new Zone is here
MyZone Group Ltd
A new zone is here for your club, for your members and for you. Read more
More videos:
Company profiles
Company profile: FunXtion International BV
Unlock your club’s digital potential with the FunXtion Platform. Deliver engaging and immersive digital fitness ...
Company profiles
Company profile: Premier Software Solutions Ltd
Premier Software was founded in 1994 and has proven experience developing business management solutions specifically ...
Supplier Showcases
Supplier showcase - Digital gym floor
Supplier Showcases
Supplier showcase - Bouncing back
Catalogue Gallery
Click on a catalogue to view it online
Directory
Direct debit solutions
Harlands Group: Direct debit solutions
Spa software
SpaBooker: Spa software
Fitness Software
FunXtion International BV: Fitness Software
Skincare
Comfort Zone - Davines S.p.A: Skincare
Red Light Therapy
 Red Light Rising: Red Light Therapy
Whole body cryotherapy
Zimmer MedizinSysteme GmbH / icelab: Whole body cryotherapy
Member feedback software
AskNicely: Member feedback software
Hydrotherapy / spa fragrances
Kemitron GmbH: Hydrotherapy / spa fragrances
Locking solutions
Monster Padlocks: Locking solutions
Gym flooring
REGUPOL/Berleburger Schaumstoffwerk (BSW): Gym flooring
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
03-06 Nov 2020
Online,
Diary dates
12 Nov 2020
Virtual, United States
Diary dates
17 Nov 2020
Loughborough University, Loughborough, United Kingdom
Diary dates
27-28 Nov 2020
Athena, Leicester, United Kingdom
Diary dates
03-03 Dec 2020
Virtual,
Diary dates
08-09 Dec 2020
Raffles City Convention Centre, Singapore, Singapore
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
01-07 Dec 2022
tbc, Dunedin, New Zealand
Diary dates
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