Fitness club survivors need to shape up
SCOTLAND'S health and fitness sector is in for a challenging new year as over-expansion and a fall in new memberships last year have left most of the groups susceptible to takeovers and unwanted change.
Last week, Cinven was revealed as the preferred bidder to take the market's largest operator, Fitness First with five gyms in Scotland, private.
Holmes Place, which opened a new centre in Edinburgh last week, continues talks with Bridgepoint Capital, while Crown Sports is in the final stages of being snapped up by its management buyout vehicle, Bennelong.
Esporta has been taken private - after a hostile takeover by Duke Street Capital - and three of the remaining four operators are in advanced buyout talks with venture capitalists.
January - traditionally the best month for new business at health clubs - is more important than ever this year as the fitness industry tries to put the troubles of a tough 2002 behind it.
The clubs bucking the trend are the premium operators, which are mostly owned by hotel groups. Whitbread's David Lloyd, Hilton's Living Well and Six Continents' Spirit Health clubs have all performed well over the past year, but tend to be very different businesses from the likes of Fitness First and LA Fitness. They cater for wealthier clients and do not have to resort to such heavy discounting to attract members.
Sir John Banham, the Whitbread chairman said: "We're not really into young men pumping iron at David Lloyd, which probably is a market that's close to saturation."
He added: "Virtually all our competitors, even our direct competitors like Cannons and Esporta, have troubles at the moment. I'd like to think the reasons they've had problems is because we're doing well."
The last business standing is LA Fitness which, as a result of the flow of bad news surrounding all its sector peers, has seen almost 60% wiped off its share price in the past year.
As the youngest in its sector, LA Fitness has had the opportunity to learn from the mistakes of its peers. Its expansion has been more measured and it has been careful to keep the market regularly updated on its progress.
Yet however successful the company has been, the chances of it surviving 2003 as the only quoted health club stock remain very slim. With shares trading near its all-time low of 93.5p, reached at the start of last month, the company is already an attractive buyout target.
By JAMES DALEY
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