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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
Member confidence is the single most important factor, and I say – without doing so lightly – that our cleanliness standards, protocols and marketing are the best I’ve seen in the industry
People
HCM people

Luca Maggiora

Co-founder, House of Wisdom
People think making a change is easy and fast, but that isn’t true. It’s hard and it takes time
People
The future of our industry is as a ‘national health service’ – we can’t dance around these conversations – if we’re serious about being closer to health agencies, that needs change and commitment
Features
Research
Perhaps a ‘federal’ approach that sees local trusts retained, but with shared back of house services is the way forward?
Features
feature
As the fitness industry grapples with the challenge of optimising digital, Volution’s Adam Norton shares his vision for a customised data-centric approach that will lead operators into a new era of success
Features
Body scanning
COVID-19 is driving huge consumer interest in health, creating the opportunity for operators (with the right kit) to offer body scanning and analysis. We look at some of the top options
Features
Insight
As the physical activity and sports sector unites to fight its corner in making a case for government investment, Sport England has commissioned a research study to prove the economic value of activity, giving weight to the argument. Tom Walker reports
Features
feature
Wattbike’s lead sport scientist Eddie Fletcher discusses the importance of health assessments, changes in consumer behaviour post-lockdown and the latest UK government strategy
Features
Editor's letter
The hard work is paying off and we’re earning a reputation for safe operations. Now it’s time to tackle the next set of challenges – increasing capacity, yield and memberships, deepening engagement and rebuilding profits says liz Terry
Features
Talking point
Gym operators in the UK can now open on the high street, without planning permission, thanks to changes in legislation. What impact will this have on the industry? Kath Hudson reports
Features
Latest News
Digital fitness brand Fiit has secured a groundbreaking deal with satellite TV giant, Sky, to ...
Latest News
Indoor cycling brand, Flywheel, has filed for Chapter 7 bankruptcy and closed all its US ...
Latest News
Industry body EuropeActive has published a sectoral manifesto which outlines the aims and objectives of ...
Latest News
European fitness operators will face increased consolidation, accelerated digitalisation and the new reality of creating ...
Latest News
Fitness giant Equinox has opened its first fully-outdoor gym in Los Angeles. Called Equinox+ In ...
Latest News
An online fitness community, created by personal trainer and social media influencer, Talilla Henchoz, during ...
Latest News
Two functional fitness franchises are continuing their legal battle over a dispute relating to patents. ...
Latest News
Xponential Fitness has entered the Saudi Arabian gym market with the launch of five boutique ...
Opinion
promotion
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
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
Featured supplier news
Featured supplier: Volution explains how to drive the lifetime value of members through virtual engagement
In April 2020, two-thirds of the world’s gyms went into temporary closure due to COVID-19.
Featured supplier news
Featured supplier: The Virtual Revolution: Hutchison Technologies help operators motivate members
Hutchison Technologies virtual solutions are helping operators expand their virtual offering and get motivated members back into the club.
Video Gallery
Temple Gym - Nautilus Equipment
Core Health & Fitness
Temple Gym - Nautilus Equipment Read more
More videos:
Company profiles
Company profile: Fisikal Limited
Fisikal helps fitness professionals, operators and education organisations improve efficiencies and service through its online ...
Company profiles
Company profile: TRIB3 International Ltd
First established in Sheffield in January 2016 TRIB3 is a bootcamp boutique studio designed to ...
Supplier Showcases
Supplier showcase - Ultimate locker install
Catalogue Gallery
Click on a catalogue to view it online
Directory
Design consultants
Zynk Design Consultants: Design consultants
Independent service & maintenance
Servicesport UK Limited: Independent service & maintenance
Trade associations
International SPA Association - iSPA: Trade associations
Spa software
SpaBooker: Spa software
Locking solutions
Monster Padlocks: Locking solutions
Wearable technology solutions
MyZone: Wearable technology solutions
Fitness equipment
TRX Training: Fitness equipment
Skincare
Comfort Zone - Davines S.p.A: Skincare
Hydrotherapy / spa fragrances
Kemitron GmbH: Hydrotherapy / spa fragrances
Direct debit solutions
Harlands Group: Direct debit solutions
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

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
Digital fitness brand Fiit has secured a groundbreaking deal with satellite TV giant, Sky, to ...
Latest News
Indoor cycling brand, Flywheel, has filed for Chapter 7 bankruptcy and closed all its US ...
Latest News
Industry body EuropeActive has published a sectoral manifesto which outlines the aims and objectives of ...
Latest News
European fitness operators will face increased consolidation, accelerated digitalisation and the new reality of creating ...
Latest News
Fitness giant Equinox has opened its first fully-outdoor gym in Los Angeles. Called Equinox+ In ...
Latest News
An online fitness community, created by personal trainer and social media influencer, Talilla Henchoz, during ...
Latest News
Two functional fitness franchises are continuing their legal battle over a dispute relating to patents. ...
Latest News
Xponential Fitness has entered the Saudi Arabian gym market with the launch of five boutique ...
Latest News
Chancellor Rishi Sunak's proposals to support the economy through the next six months of the ...
Latest News
The UK government's 'Rule of Six' has come into force in physical activity facilities today ...
Latest News
The UK's physical activity sector has come together to get millions of people active during ...
Opinion
promotion
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
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
Featured supplier news
Featured supplier: Volution explains how to drive the lifetime value of members through virtual engagement
In April 2020, two-thirds of the world’s gyms went into temporary closure due to COVID-19.
Featured supplier news
Featured supplier: The Virtual Revolution: Hutchison Technologies help operators motivate members
Hutchison Technologies virtual solutions are helping operators expand their virtual offering and get motivated members back into the club.
Video Gallery
Temple Gym - Nautilus Equipment
Core Health & Fitness
Temple Gym - Nautilus Equipment Read more
More videos:
Company profiles
Company profile: Fisikal Limited
Fisikal helps fitness professionals, operators and education organisations improve efficiencies and service through its online ...
Company profiles
Company profile: TRIB3 International Ltd
First established in Sheffield in January 2016 TRIB3 is a bootcamp boutique studio designed to ...
Supplier Showcases
Supplier showcase - Ultimate locker install
Catalogue Gallery
Click on a catalogue to view it online
Directory
Design consultants
Zynk Design Consultants: Design consultants
Independent service & maintenance
Servicesport UK Limited: Independent service & maintenance
Trade associations
International SPA Association - iSPA: Trade associations
Spa software
SpaBooker: Spa software
Locking solutions
Monster Padlocks: Locking solutions
Wearable technology solutions
MyZone: Wearable technology solutions
Fitness equipment
TRX Training: Fitness equipment
Skincare
Comfort Zone - Davines S.p.A: Skincare
Hydrotherapy / spa fragrances
Kemitron GmbH: Hydrotherapy / spa fragrances
Direct debit solutions
Harlands Group: Direct debit solutions
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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