Journal articles

Full Interview: Avi Goldberg, Rothschild

Full Interview: Avi Goldberg, Rothschild back to list

21 October 2013

Avi Goldberg, Managing Director of international financial advisory group, Rothschild explains why now is the right time to invest in the sector.

1.) How has the value and perception of the sector changed in the last 20 years?
The sector has seen a real cycle of highs and lows, and the landscape today is very different indeed to what it looked like 20 years ago. In the mid-90's, we saw the beginning of the development of scale from both an estate and individual site perspective, as the sector took off. These large-format sites were arguably focussed more on providing a leisure lifestyle to the user rather than the exercise and health-benefit focus of gym operations in today's more hectic lifestyle environment. Fast forward to the early 2000s, when aggressive debt-fuelled rollout, poor profit conversion and a weakening consumer confidence led to numerous take privates at declining value multiples and industry consolidation. However, the cycle turned quickly - company rationalisation, liquid debt markets and inflating property prices led to five transactions between September 2005 and June 2007 at double digit value multiples. Today, in the aftermath of the credit crisis and what we all hope is the beginning of a sustained economic recovery, the focus remains on a rationalised tail, individual site economics, a value-for-money and flexible offering, brand appeal, providing a more holistic health service, and delivering definite fitness improvement through a combination of gym offering and a more engaged consumer.

2.) What are the key growth opportunities for investment at the moment?
Perhaps the most significant recent development in the sector has been the exponential growth of the budget gym sector which has, inevitably, already led to corporate activity with transactions of the two largest players at strong valuations, indicative of the confidence in the growth of this new 24 hour, technology-led niche. Many commentators suggest there will be a long-term polarization of the sector, between a frequent exercise budget offering, and a more premium lifestyle choice with potential to cater for family memberships - if this materialises, there will clearly be a niche for a high-end luxury lifestyle offering, much like David Lloyd today. I also believe today's consumer is beginning to think more holistically, and creatively, about adopting a healthy lifestyle. This will certainly create investment opportunities in the health monitoring and nutrition segment, whether as a bolt-on to existing operations of gyms, or as standalone and complementary products to the consumer. The growth of non-traditional fitness operators - British Military Fitness, Powerleague and Human Race to name but a few - demonstrate that there will continue to be demand for group-based exercise solutions outside of the traditional gym format. And finally, as we experience in every aspect of our lives today, technological advancement will continue to offer new and exciting opportunities to deliver a solution that meets the evolving needs of an increasingly sophisticated fitness consumer. Whether this is providing an existing function in a more effective manner e.g. innovative fitness equipment, or completely new products e.g. e-monitoring tools / app-based products / social media, technology will remain a lynchpin of the sector and as such will always represent a key growth opportunity.

3.) What are the key things currently guiding investment in the sector?
I think the key driver guiding investment today is the fundamental of the necessity of people to exercise more often, to derive both physical and mental benefit. This is from both a preventive and curative perspective - it is a clear endorsement for the sector that doctors can now prescribe exercise as a treatment for certain health conditions. Accompanying this is the growing recognition of the consumer of the necessity and benefits of adopting a healthier lifestyle, and their drive to embrace this in a holistic manner, from exercise all the way to nutrition - the growth in healthy and fresh casual dining brands and increasing use and awareness of nutritional supplements are all testament to this. Further supporting this is the Government drive to increase awareness of a healthy lifestyle - and the relief this will have on the NHS. Sustained in-roads with public and private sector partnerships could be an exciting and mutually beneficial ‘norm' of tomorrow's fitness landscape. From a more micro-trend perspective, the recession has driven a heightened sense of value-for-money in the minds of the consumer, and I believe this is here to stay and embedded in the sector polarisation argument. However, it can be crystallised in two ways - either a cheap and flexible service, as filled by the budget gym model, or demand for a branded offering, such as David Lloyd, where the consumer is willing to pay for a ‘known quantity'. Nevertheless, the strength and track record of the Management team, whatever the business, will always remain the final piece of the investment puzzle.

4.) What is your take on the flurry of activity in the last 18 months, especially around organisations like The Gym Group, Pure Gym and Fitness First?
Well, it's clearly great to see such a positive effect of what we are all hoping is the sustained emergence from the global downturn. It is encouraging to see an improvement in consumer confidence, reflected in the growth trajectories of sector revenues, and the accompanied growth in investor confidence. Clearly private equity has been a key ingredient of the corporate activity we have witnessed in the last 15 years and along with private equity, and to make it work for those investors, there is of course the need for leverage. Not only is lending back, but the range of lending options is expanding beyond the more traditional banks e.g. the unitranche faciliites, or take The Children's Investment Fund's role in the recent DLL acquisition. Transactions of the two largest budget operators at high historical multiples reflecting the strong business growth rates, demonstrates the demand for flexible, 24 hour cost effective offerings that have developed and filled the gap left by the contraction of the Fitness First estate. The recent flurry of activity is also evident to me that at every point in the cycle, the winners remain the most operationally efficient, flexible and dynamic players, with the right-sized capital structure to suit the economic environment. It is also recognition that the core product is absolutely essential to daily life and it is a market that will, and needs to, continue to grow. We see increasing statistical evidence of the expanding waistlines of modern day Britain that, for the health of the nation, should be combatted by, to coin Ukactive's strapline, more people, doing more exercise, more often. And it is because of this that I remain an optimist for the sector and am confident that it will continue to attract investment for years to come.

Read the complete article, including articles from Peter Jones, CEO of Pure Gyms, John Treharne, CEO of the Gym Group and an comment piece from ukactive CEO David Stalker on 'Investing in the Sector' (page 18).


back to list
Lets Get Moving