PureGym works out IPO to fund global expansion

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PureGym, the UK’s largest gym chain, has appointed advisers to work on a potential initial public offering to back global expansion as it taps the post-pandemic interest in fitness.

The company said that all of its 506 gyms were now open in the UK, Denmark and Switzerland, with relatively few restrictions on members, which meant that revenues were almost back to levels before the pandemic. 

As a result of the rapid bounce back in demand, the company is returning to pre-pandemic growth plans, aiming to open more than 50 sites a year and expand into areas such as the Middle East, Asia and the US. 

In a financial update to bondholders on Thursday, the company said it was studying capital raising options to take advantage of these growth opportunities as well as to reduce its borrowing. PureGym had £810m in net debt at the end of the quarter.

Humphrey Cobbold, chief executive, said the group was recovering quickly after a “shockingly challenging first quarter” and now wanted to “have more cash and resources available to pursue opportunities”. 

He added: “Clearly, we’re carrying a pretty debt-laden balance sheet at the moment. So I don’t think there’s any surprise that we’re considering capital raising options.”

Among the options will be an IPO as early as this year. PureGym has appointed Morgan Stanley and Barclays as lead advisers, with RBC, Jefferies and Berenberg lined up as bookrunners.

The group opened 15 new gyms in the first half of 2021 and plans to open a further dozen sites in the second half of the year across the UK. The company is aiming to accelerate this expansion in 2022. The first of 40 franchised sites in the Middle East will open before the end of the year, with three new gyms to open in the US.

“We’ve got great opportunities ahead of us,” said Cobbold, pointing to the expected demand for gyms after the pandemic and the opportunities in other countries either directly or through franchises. “It’s incredibly relieving to see the business bouncing back as strongly as it is.”

PureGym has also returned to profit after heavy losses last year and in the first quarter, when it was burning through £500,000 a day after gyms were forced to shut in the Covid lockdown.

Earnings before interest, taxes, depreciation and amortisation, adjusted to include rents, reached £16m for the second quarter and £8m in the month of June alone. Total group membership was 1.6m on August 15, 94 per cent of levels in December 2019 before the pandemic hit the business.

Cobbold said the company had lost between £100m-£150m during the pandemic, which given earnings of about £132m in 2019 meant that “it just wiped out cash and profitability for an entire year”.

The chain was supported with an £100m equity injection by its majority owner Leonard Green, the US private equity group, and also took advantage of government Covid support schemes and deferred rents at many sites.

As much as £30m of deferred rents still need to be repaid, Cobbold said, with the company in talks with landlords about returning the money over time.

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