Quadrant Private Equity has snapped up gym chain Fitness First and will transform one of the country's best known fitness brands to ensure it is not caught napping again by new trends sweeping the $2 billion gym industry.
The acquisition, from hedge fund giant Oaktree Capital Management, is the fourth piece of the puzzle for Quadrant's big play into the gym market, which executive chairman Chris Hadley says he has eyed for 15 years.
Quadrant has recently bought the Goodlife Health Clubs network, and franchised budget chain Jetts Fitness. And The Australian Financial Review can also reveal it has also acquired HYPOXI, a non-invasive targeted body-shaping method that has achieved cult status globally.
The combined gym group is now the largest in Australia, servicing 650,000 members and with revenue north of $400 million, and Mr Hadley, who will be its chairman, said the company could make an attractive float candidate in time.
"The nature of the industry and the growth going forward... will be appealing to institutional investors," he said, adding the market was growing at 5 to 6 per cent annually.
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Quadrant's Fitness and Lifestyle Group, which will count Oaktree as a shareholder, encompasses 224 company-owned gyms and 188 franchised outlets. It is understood to be worth about $800 million. The Financial Review's Street Talk column revealed Quadrant's plans to acquire Fitness First on September 18.
Quadrant will retain the four brands, given Jetts is a substantially different offering, and Goodlife and Fitness First are strong in separate markets.
"Fitness First is very strong in NSW," Mr Hadley said. "Goodlife is strong in every other state other than NSW. For the first time we've got a truly national player at scale that can deliver to its members a whole range of services."
But big changes are underway for Fitness First.
Former Goodlife CEO Greg Oliver, who has worked in the fitness industry for almost four decades, will run the combined group. One of his first priorities will be extending the opening hours for some of Fitness First's 61 outlets to 24/7 operation to better compete against new chains. In the past 18 months 46 Goodlife clubs have extended their opening hours and there are plans for another 20 to make the switch.
"As we've gone through this program our members' satisfaction has increased dramatically," Mr Oliver said.
Many established gym networks were left flat-footed by the arrival of new low-cost operators like Jetts and Anytime Fitness, which offer round the clock access and no-frills facilities. Many members switched to the upstarts because they were more flexible and didn't charge for premium services that not everyone needed – like instructor-led classes, cafes on site and fresh towels in the change rooms.
The consumer shift, which began at the beginning of this decade, came at a terrible time for Fitness First, which was troubled around the globe.
Private equity group BC Partners bought Fitness First in 2005 for €1.2 billion ($1.8 billion) and failed to float the business in 2011.
The group's owner tried and failed in 2012 to offload about 24 Australian centres, but some stability was brought when hedge funds led by Oaktree Capital Management saved the British parent from collapse in 2012 with a £550 million debt-for-equity swap that left BC a minority shareholder.
Between 2012 and 2014 Fitness First in Australia shuttered 19 underperforming gyms, cut 120 jobs and put new openings on hold, which slashed revenue by 15 per cent but put the network on a more stable footing.
Mr Oliver said he'd watched his rival being turned around under Oaktree's ownership and was satisfied it was now ready to grow again. "Clearly there were some troubles they had previously but they're well gone and behind us," he said.
Mr Hadley said there was a chance Quadrant's gym group could grow at a faster pace than the market by targeting baby boomers. Only 15 per cent of Australian boomers had gym memberships, compared to 19 per cent in the United States, he said.
The Jetts network has made initial steps into Asia with the opening of two clubs in Bangkok, Thailand. The owners said further Asian expansion would initially be limited to Jetts.
Oaktree managing director and Fitness First board member Justin Bickle told the Financial Review that after investing heavily in the relaunch of the business over the past few years "we are excited to be part of the Fitness and Lifestyle Group and we are very supportive of their long term growth strategy and what the combination will deliver for members."
The deal was signed at King & Wood Mallesons' offices on Thursday morning. Nomura, King & Wood Mallesons and EY advised Quadrant, while Record Point and Gilbert + Tobin tended to Oaktree.
Quadrant last month acquired low-cost gym operator Jetts Fitness for about $100 million, having purchased Goodlife Health Clubs from theme park operator Ardent Leisure just a few weeks prior.
(First published in The Australian Financial Review, 29 September 2016)
Writen by The Australian Financial Review, 19/08/2016 News