Private Equity Gains at your local gym

An unexpected email about my local gym getting absorbed into a much larger PE-backed fitness group led me into a bit of rabbit hole on the deals and strategies in this space.

Two weeks ago, I received an unexpected email: my local Fitup gym would now operate under the Vivagym banner, courtesy of Providence Equity Partners. This took me by surprise as I had heard of them before. From a business standpoint they are almost a direct competitor and operating in similar customer segments and price points.

When I looked at recent developments at Vivagym it started making more sense. It was yet another sign of the broader transformation sweeping through Europe's fitness landscape led by the increasing appetite of private equity firms for gym chains and wellness clubs.

The Vivagym Story

Spain offers a peek into the fitness market evolution currently underway, and Providence Equity's aggressive expansion through Vivagym illustrates the accelerating consolidation in this space.

The Fitup deal was Vivagym's fifth acquisition in 2024, positioning them as the fourth-largest fitness operator in Spain.

Providence’s entry into the Spanish market began with its buyout of Vivagym from Bridges Fund Management in early 2024, with another large PE fund’s foray indicating a fragmented yet promising market for growth. The transaction was valued at approximately €250-300 million, ~12x EBITDA, reflecting both market potential and operational value creation opportunities.

Post these five acquisitions since the buyout, Providence is transforming Vivagym from a regional player into one of the more dominant ones in the Iberian Peninsula.

Vivagym now operates 222 centers in Spain and 41 in Portugal, serving approximately 441,000 members in Spain and 110,000 in Portugal. The company is projecting 2024 revenues of €180 million, highlighting the scale benefits of consolidation.

But this is far from being the first PE-backed transaction in the space in Spain, and clearly there is an opportunity and consolidation potential that other investors are trying to capture as well.

*Estimated based on market comparables and strategic positioning

Market Dynamics and Investment Rationale

At the first principles level, there are some interesting dynamics underlying these deals.

Fitness clubs are the OG recurring revenue models. You pay a monthly subscription fee, and at times even the whole annual amount at the start of the year to tick off the new year’s resolution and rarely stop making that payment.

Customer acquisition / retention costs are not that high. Gym memberships are one of the first things you sort out when you move to a new city or a neighbourhood, and once you are in you rarely want to give up that convenience and benefits (based on location, facilities, social dynamics).

At the operational level, the business and the underlying infrastructure is quite scalable and at each centre you can expand and grow your customer base with increasing operating leverage, standardised customer experience and replicable results.

And its not just Spain or Iberia, this consolidation is happening in most markets in Europe led by notable PE firms orchestrating different strategies with some common themes around value creation.

But most importantly, for the consolidation / roll-up strategy to work well, the fitness industry's structural characteristics align perfectly with private equity's playbook:

Fragmented Market Structure

The European fitness market is highly fragmented with a lot of small operators. There are over 65k facilities across key EU markets, with the top 30% of them only controlling 25-30% market share.

Secular Growth Drivers

Increasing awareness and demand:

Post the pandemic there has been a secular trend of growing awareness around fitness related activities, and health and wellness continues to maintain its spot in one of the most important consumer markets. There is a demographic shift towards wellness oriented lifestyles (Have you noticed the increasing number of run clubs in your city?)

European wellness and fitness market is worth more than €26B and projections suggest a compound annual growth rate (CAGR) of approximately 7-9% through 2030.

Digital integration opportunities:

A hybrid (physical + digital) model is one area where the runway for growth is still massive, with most centers still behind the curve creating a digital experience around workouts, advice and other services.

Premium segment expansion:

Some PE backed Fitness operators are now expanding from the traditional budget segment (cheaper generalised model) to a more premium, boutique, and a more specialized model with additional services. There is a growing trend towards other activities (Hyrox / Crossfit, Sauna, Pilates, Combat sports and the like).

Multi-format offerings is another area along the lines of the ones above, combining different subscriptions, digital services, individual or group sessions together. Services like Wellhub are a good example of this emerging space.

Operational value creation opportunities

Operational synergies are another important structural feature of this strategy that allows PE firms to enhance Revenues and EBITDA, and therefore the exit potential even further.

Operational Efficiency:

• Technology platforms consolidation: Consolidating IT systems like CRMs, Payments and other digital platforms.

• Procurement economies: Supplier consolidation and contract adjustments for equipment, consumables and maintenance services.

• Marketing efficiency: Combining marketing functions and systems to reduce customer acquisition and brand/other marketing costs.

• Personnel and Training: Optimizing the management layer and other admin. costs.

• Real estate optimization: Economies of scale in lease and contract negotiations.

Revenue enhancement:

• Membership optimization via cross-sell opportunities and improving retention.

• Scale and geographic density benefits to improve customer satisfaction and retention

• Improved pricing power (and possibly ARPU adjustments).

• Digital offerings to improve app engagement and reduce churn.

One of these large fitness operators, which went through the PE investment lifecycle offers insights into how a private buyer can create value in this sector.

The Basic-Fit Case Study: Entry to Exit to maybe Entry again?

3i Group, back in 2013, recognised the European Fitness scale-up opportunity in the budget / value segment quite early on. They invested €110 million for majority stake at an entry EV of €275 million.

• Initial Footprint: 199 clubs across Netherlands, Belgium, Spain

• Revenue at Entry: €140 million (2013)

• EBITDA at Entry: €30 million (approximate)

The investment thesis centered on the growing European value fitness segment, where Basic Fit's scalable model offered significant potential for geographic expansion and operational enhancement.

3i's approach balanced aggressive growth with operational discipline, including strategic growth levers such as:

• Accelerated club rollout strategy

• Geographic expansion into France and Luxembourg

• Enhanced digital capabilities and member experience

• Standardized operating model across markets

And the results were quite extraordinary.

It expanded from 199 to 419 clubs, with a revenue CAGR of 23% and EBITDA CAGR of 38%, improving margins by considerably in the process. Memberships increased from 720,000 to 1.2 million validating both the market demand and the effectiveness of Basic Fit's value proposition.

3i exited (partially) by taking the company public in 2016 and crystallizing the impressive returns.

• Exit EV: €1.2B

• Returns:

  • IRR: ~50%

  • Money Multiple: ~4x

After almost a decade, it now might become a PE target again

Under the current management, Basic Fit has continued to demonstrate growth in fundamental metrics as a public company.

But the share price never really kept up post Covid and multiple compression on top of it led it to decline by more than 50% between Jan 22 and Feb 24 despite continued operational improvement and growth.

Price and EBITDA multiple declining. Source: Koyfin

A couple of months ago, a Basic Fit hedge fund shareholder Buckley Capital Management urged the management and after holding discussions to put itself for sale to a PE buyer. Then one of its largest shareholders with 10% of outstanding shares, Impactive Capital, wrote an open letter to the management to buy back shares at the current price to create value for existing shareholders and narrow the current valuation discount.

Its trading at a cheap valuation indeed, between 6-6.5x EBITDA roughly half of the typical 11-12x deals we see at this scale in the sector.

Although Basic Fit now being much mature might not be an aggressive expansion play, under private hands it can experiment with the formats it offers and strategically reposition itself. It could also develop its brand portfolio development and extend the services it offers via digital and technology infrastructure enhancement.

Consolidation of smaller scale operators in major markets could be another opportunity (for add-ons) and it will be interesting to see how this develops. Just the multiple arbitrage play (buy low, sell at typical fitness market multiple) can help the PE buyer realize attractive returns.

---

PE is playing a pivotal role in reshaping the competitive landscape in the fitness and wellness sector. The combination of fragmentation, operational improvement potential, and secular growth trends continues to drive their interest, particularly in markets like Southern Europe where consolidation is still in early stages.

Watch out for 2025. PE might be very soon coming for some Gains at a gym near you.

Until next time,

The Atomic Investor