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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
http://www.leisureopportunities.com/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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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
http://www.leisureopportunities.com/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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promotion
Evidence suggests that over many years personal trainers have been forced to leave the fitness industry because employment patterns are erratic, earnings are inconsistent and it is difficult to build up value needed to secure an appropriate lifestyle.
Opinion: Personal trainers need support as employment opportunities diminish: FREE on-demand webinar
Featured supplier news
Featured supplier: The rise of the training pod
Belfast based gym equipment manufacturer BLK BOX designs, engineers and fabricates a range of rigs for the most elite, performance-driven organisations globally.
Featured supplier news
Featured supplier: Dormy House enhances premium facilities with fully connected fitness suite
Dormy House, a luxurious boutique hotel and spa in the heart of the Cotswolds, has expanded its premium offer with the refurbishment of its two fitness suites, incorporating the latest, fully connected gym equipment from Matrix Fitness.
Video Gallery
Resolute™ Strength
Precor
Resolute™ Strength - New Selectorized Strength Line From Precor Read more
More videos:
Company profiles
Company profile: Myzone Group Ltd
At Myzone we reward Effort to solve the pervasive problem of ‘diminishing motivation within exercisers’ ...
Company profiles
Company profile: Life Fitness
Through our Life Fitness Solutions Partners, we can deliver design and build services, finance solutions, ...
Catalogue Gallery
Click on a catalogue to view it online
Directory
Wearable technology solutions
MyZone: Wearable technology solutions
Lockers/interior design
Fitlockers: Lockers/interior design
Management software
fibodo Limited: Management software
Software
Volution.fit: Software
Exercise equipment
Technogym: Exercise equipment
Trade associations
International SPA Association - iSPA: Trade associations
Skincare
Comfort Zone - Davines S.p.A: Skincare
Whole body cryotherapy
Zimmer MedizinSysteme GmbH / icelab: Whole body cryotherapy
Locking solutions
Monster Padlocks: Locking solutions
Design consultants
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Property & Tenders
Waltham Abbey, Essex
Lee Valley Regional Park Authority
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21-24 Sep 2020
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Diary dates
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Diary dates
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Diary dates
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Diary dates
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Online,
Diary dates
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Diary dates
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Diary dates
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Diary dates
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Diary dates
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Diary dates
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