The private equity owner of Fitness First has replaced the gym chain’s top management as it fights to preserve its more than €500m equity investment in the highly indebted company.
The move by BC Partners comes as analysts forecast further consolidation in a fragmented market that has been hit by a slowdown in consumer spending and the emergence of low-cost competitors.
The UK buy-out group will next month enter negotiations with Fitness First’s creditors over the refinancing of a £550m debt burden amid concerns that the fitness club chain could breach its covenants, people close to the situation said.
The step follows an aborted attempt last year to list the company on the Singapore stock exchange and use the $460m in expected proceeds to pay down debt, a move that was derailed by global financial market volatility.
BC Partners recently replaced its partner Stefano Quadrio Curzio as chairman of Fitness First, bringing in managing partner Andrew Newington instead.
Now BC Partners has parachuted in Chris Stone, known for turning round private equity-owned Northgate Information Solutions, as chief executive after the departure of his predecessor Colin Waggett.
It has also replaced Fitness First’s chief financial officer and head of the UK.
Mr Stone is set to curb Fitness First’s spending after relentless growth in the past few years, which led to spiralling costs, particularly in the group’s middle management.
He is expected to reduce the number of managers while reinvesting in the chain’s more than 430 clubs in 15 countries to improve service. The chain is targeting the middle market.
Fitness First, which is third-biggest in the UK market by membership and has a big presence in Asia and Australia, reversed its European expansion strategy in 2010 when it sold all its clubs in the Benelux countries, Spain and Italy.
Most of the group’s debt matures at the end of next year, but a revolving debt facility that is essential for the operative business is due to expire in November.
One person close to BC Partners said Fitness First’s about 40 creditors would likely demand an additional equity injection in exchange for a refinancing of its debt.
But it remained unclear if the buy-out group would be willing to do that after pumping in additional money two years ago.
BC Partners bought the gym chain in 2005 for £835m and spread the investment across two of its private equity funds.
Fitness First was set up by entrepreneurs Mike Balfour and Christopher Pearce with the aim of making fitness more affordable.
But analysts said it was now fighting in a low-growth market where start-ups are attacking the incumbents by offering access to their facilities without a monthly contract.
Analysts at Mintel, the consumer research group, recently predicted subdued growth rates in the £2.7bn UK fitness market.
In a report last year, they forecast a further consolidation wave in a sector where the top seven operators account for 23 per cent of the number of clubs.
Last year, Richard Branson’s Virgin Active bought 55 premium Esporta sites.
The £78m deal came only months before private equity group CVC Capital Partners took a 51 per cent stake in Virgin Active to support its Asian growth strategy, which analysts said mimicked Fitness First’s expansion in the region a few years earlier.