How The Gym Group Hit the Market

Last week saw a pivotal moment for the Fitness Industry in the UK with the listing of The Gym Group on the London Stock Exchange, the first gym company to be listed in 15 years. Rumours that the company would be brought public first came to light in August, just a year after plans to merge with another low-cost operator, Pure Gym, were abandoned.

While bringing the company public has been in the pipeline for some time, the lack of other comparable companies in the market meant that establishing a robust listing price proved difficult.

Notwithstanding this uncertainty, the beginning of unconditional dealing on the 12th November has seen the share price remain above the listing price of 195 pence for an overall market cap of circa £250m and a historic EBITDA multiple of 17x; providing a significant benchmark for the fitness industry.

Curiosity in the company has been triggered by its impressive recent growth, with revenues at the company increasing from £22m in 2012 to £45m in 2014. CEO John Treharne has suggested that there will be more of the same with plans to open 15-20 gyms each year.

John Treharne - CEO The Gym Group

Overall confidence in the business model appears to have attracted a new investor base. Many customers continue to favour the pay as you go system that The Gym Group operates which relieves them from long-term and expensive contracts. This has given confidence to investors who see the low cost model as a worthwhile investment, and are prepared to pay a premium to be involved.

So what does this mean for the sector as a whole?

Naturally, a successful float of one company does not signal an avalanche of similar floats, but it would be fair to say that many of the larger players in the sector will be looking at the share price of The Gym Group over the next few weeks with much interest.

If one were to apply the same market multiples provided by The Gym Group IPO to the private fitness sector in general, there is an argument to suggest that the private fitness sector is worth north of £15bn – something that its competitors (many with Private Equity backing), may want to take advantage of sooner rather than later.

On a wider note, it is only a matter of time before the positive investor sentiment in the sector builds up sufficiently to attract the attention of Government policy makers. As many stakeholders point out, investment into the fitness industry – especially a low cost accessible model – will save the NHS money further down the line; more people getting active will result in a significant improvement in both their short-term and long-term health.

The flotation of The Gym Group has shown the appetite for investment into the physical activity sector, reinforcing the continuing success of the low cost gym model. How the IPO could assist with the expansion of The Gym Group from its current 66 sites will be keenly watched by competitors and welcomed by those who see the huge potential of the low-cost model driving the growth of the sector.

The Gym Group