LENDER PERSPECTIVE
LENDER PERSPECTIVE
some companies still fully remote working. Third Space genuinely has become people’s third space. We love that business and are delighted to have provided it with funding. But interest in fitness isn’t only at the premium end. The data we’ve seen suggests that although club numbers are reduced, overall UK gym membership is growing 4 per cent year-on-year. Real wages are also up, and people are now willing to spend on their health and wellbeing – within their own affordability range – rather than go out. So the lower-cost market is also booming, which is where we’d place Total Fitness. For a very reasonable monthly investment, you can go to the gym and look after your health. People are attending more often than previously, too, meaning it can easily work out at just £2–3 a visit. Our view is that any clubs charging £50–£100 a month may struggle. Above or below that is the growth territory. That’s not to say the mid-market will disappear, but it will be squeezed; there are already fewer brands in that market segment than there used to be.
Our view is that any clubs charging £50–100 a month may struggle. Above or below that is the growth territory.
Once we’ve identified businesses we want to lend to, we look to create structured, innovative debt solutions to help them grow. That includes not restricting ambitious growth plans by insisting on a business reaching a certain level of profitability or a certain number of members before we’ll unlock the next batch of capital to open the next site. For the fitness industry to achieve its potential, it needs funding partners who understand the sector and are passionate about it, with a team that will continue to be there – irrespective of what’s happening in the cycle – to help businesses achieve their ambitions. How interesting is fitness as a sector? For us, it’s a broad category and not limited to fitness: we’ve also provided funding to Deliciously Ella, for example, which is a great health and wellbeing business, and Beaverbrook, a super high-end luxury hotel-spa-gym- golf-restaurant in the Surrey Hills. We see all of this as a growth sector, especially when you consider what consumers now want – the shift to health. Compounded annual growth rate of the sector is expected to be around 11.5 per cent over the next three to four years, so we see it as a good sector for funding – provided you’re comfortable with the management team and there’s underlying profitability. Our view: the UK is recognising what’s good for you and what isn’t so good for you, and we’re seeing a loyal customer base developing. That’s particularly the case at the premium end, where people are fully invested. With premium health clubs, for example, people have chosen their club and they actually love being there. Brands such as Third Space are flying. People can spend hours there, network, be part of a community – it’s what we were all missing during lockdown and beyond, with
OakNorth is very interested in the super- premium category, loaning £88.5m to Third Space in conjunction with a partner
Total Fitness received a £6.5m loan from OakNorth in 2023
DEEPESH THAKRAR & VALENTINA KRISTENSEN
OakNorth is seeking further opportunities in the growth sector of health, fitness and wellbeing, say the bank’s Senior Director of Debt Finance and Corporate Affairs Director
What is your approach? OakNorth is a lender. Ours aren’t investments in the sense of taking equity and making returns based on increased company valuations. It’s debt, with returns via loan interest. The bank opened for business in September 2015 and since then, we’ve lent over £10bn to a variety of UK businesses and professionals; we look for good opportunities across a range of different sectors, not just health, fitness and wellbeing. We have two current fitness sector loans that are in the public domain, however: Third Space, with an £88.5m loan in conjunction with a partner; and Total Fitness, with a £6.5m loan.
What makes OakNorth different is that we don’t concern ourselves with a sectoral view. That is, we don’t make our decisions based on the current state of a sector or where it is in its economic cycle. No matter where a sector is in its cycle, we know there will always be good businesses and exceptions to the rule. We look for strong financials, historic and projected, but we also want to be comfortable with the management team. We look at their track record and how they’ve taken decisions during tough times – how they responded to COVID, for example, what support they were able to tap into, how resilient they proved to be. We also meet face- to-face, so the management team can pitch to us: it makes for a very different relationship, especially when you’re talking about challenging economic periods.
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STATE OF THE UK FITNESS INDUSTRY REPORT 2024
STATE OF THE UK FITNESS INDUSTRY REPORT 2024
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