Gym chain secures £31m funding as it plans to go global

EUROPEAN expansion is set for Yorkshire budget gym chain Xercise4less after it raised £31m.

The Leeds-headquartered business has attracted £5m equity investment from the Business Growth Fund (BGF) in addition to an increased debt facility of £20m with Lloyds Bank Commercial Banking and a further £6m in asset finance and leasing facilities.

The funding comes as the ambitious budget gym chain, which has seen turnover almost double in the last year and is now valued at £128m, prepares to open its first site inside the M25, in Hounslow and further sites are planned to follow in London and the South East.

Founder and chief executive Jon Wright told TheBusinessDesk.com that by the end of 2016, the group expects to have 100 clubs opened. It currently has 24 open with three in construction.

“I think we will do 30 this year and 40 next,” he said.

“The funding we have secured is sufficient for us to do that now – it is just down to finding the right sites. There are a lot out there and a lot in discussion. We’ve got about 20 sites lined up.

“And at some point this year we will start investing time and effort and the resource into Europe.”

Mr Wright said that Spain would be its first choice as budget health clubs are a relatively new concept there. Germany is on the cards, too. Germany is currently home to the successful McFit – the largest fitness centre chain in Germany and Europe with 197 studios and more than 1.2m members.

“We feel we could disrupt the market there like we have done in the UK,” Mr Wright said.

Eastern Europe and Turkey are also possibilities for the chain. However, Mr Wright said it will be 2016 before Xercise4less opens any European sites.

Scotland is also a big market for the business.

“We’ve got three sites open there and another two in construction and then another two behind that.  I can see us doing 20 to 30 sites in Scotland,” Mr Wright added.

“But now, it’s the South we really want to crack into. We’ve got a good site in Bristol and six more this year in the South East.”

Mr Wright said the business picks its sites “very carefully. “We have a very, very tight selection criteria which the site has to meet. It is the most important thing for us,” he said.

Over the past 18 months, Xercise4Less has opened 15 gyms. An uplift of 96% in membership has taken membership to just under 200,000 and Mr Wright said he can see the business getting to 500,000 members by the end of the year.

Recently-filed accounts for the last financial year show that turnover and profitability have almost doubled in the course of one year to £13m and EBITDA of £3.4m, compared to sales of £7.1m and EBITDA £1.7m in its 2013 financial year. Sales have more than doubled year-on-year for the last three years.  The business is on track this year to achieve a turnover of about £30m and EBITDA of around £10m.

Xercise4Less was founded in 2006 by former rugby player Mr Wright from a single unit in Castleford, West Yorkshire.

Mr Wright said: “I’m really excited. Last year was a great year for us and we have grown at a considerable pace. We are now well placed to capitalise on this new funding.

“We are less than half way through a five-year plan, with ambitions to grow to over 100 gyms nationwide and create more than 4,000 jobs.

“Our growth has really accelerated in the 18 months since BGF’s first investment. Gaining the backing of a minority equity investor has lent us additional credibility, and played a big role in helping us to increase our lending agreements with Lloyds Bank and others. Having investment backing of this kind enables me to fully realise my vision for the business and drive it forward at the pace it needs for us to further disrupt the leisure industry and strengthen our place amongst the big players.”

The company has also been ranked as the 21st “fastest growing private company in Britain,” by the Sunday Times Virgin Fast Track 100 – the first time that Xercise4less has been included in the ranking. 

BGF, which offers long-term capital and follow-on investment, has now invested £12m in the company, after its initial commitment of £5m in August 2013 and a further injection of £2m in May 2014.

Richard Taylor, investment director at BGF, said:  “Xercise4Less, led by a strong management team, has been on an impressive upward sales and profitability trajectory and we’re looking forward to continuing the roll-out of their popular low cost model nationwide.

“This is a great example of equity and debt working hand-in-hand to support growth. We are delighted that Jon has been able to secure a complementary mix of funding, resulting in an appropriate and flexible capital structure for the company at its current growth stage.”

Matthew Pollard, Martin Beckett and Saran Lall from Lloyds Bank’s Yorkshire-based mid-market and strategic finance teams provided the enlarged debt facility.

Martin Beckett, regional director, strategic finance at Lloyds Bank Commercial Banking, said: “The management team at Xercise4Less has built a successful business based around the principle of providing consumers with access to high quality fitness facilities at affordable prices.  The latest round of funding provides the business with the capital to accelerate its rollout strategy.”