Review: Digme Fitness EIS

Digme Fitness is an an established boutique fitness studio operator providing Spin (indoor cycling) and HIIT (High Intensity Interval Training) sessions. This single company EIS offer is raising up to £3.6 million and is open exclusively to Wealth Club clients alongside West Hill investors. The minimum investment is £20,000 (normally £50,016).

Highlights

  • Digme Fitness successfully operates four studios already: all on  track to be profitable. 13,000 customers now use the studios. 
  • The sector is burgeoning but very fragmented – most are single-site operators. This opens up an opportunity to be the first to scale through a roll-out to create a business of real value. 
  • Digme aims to replicate in the UK a concept already proven in the US. SoulCycle, Digme's US equivalent, started with one studio in Manhattan in 2006. Today it has 74 studios across the US and generates $24 million annual profits.
  • Digme aims to launch a further 23 studios by 2022. If this goes to plan and the studios perform as forecast, the target return is 14x with a potential exit in five years – neither returns nor exit are guaranteed.
  • With growth potential comes significant risk, however EIS tax reliefs could help mitigate some of the risk.

The opportunity 

The concept of boutique fitness is booming as seen in the US over the last 10 years. SoulCycle is a good example: it now has 74 studios in the US, with 19 in New York City, generating $24 million annual profits. The UK is playing catch up, with many private equity firms willing to fund well run, growing businesses in this space. 

Digme promises to give you a workout like no other, using the best equipment, the highest-quality facilities and the most knowledgeable, inspiring instructors. It provides full flexibility through its “pay-as-you-sweat” model. Users purchase credits to attend classes and only pay for what they use. Instead of locking people in with membership fees, Digme creates a loyal customer base by delivering a convenient and superior fitness experience. Its focus on community and premium service is key to striking a chord with the highly sought-after millennials market. 

Digme has attracted the likes of former England rugby captain Lawrence Dallaglio OBE, who recently named Digme as the official partner of the Dallaglio Cycle Slam, the highly acclaimed fundraising event.

An impressive 1,600 new customers came on board in August 2017, taking the total number to over 13,000, with 20% month-on-month growth in sales in September. Annualised run rate turnover is currently £1.2 million, which is likely to grow significantly as Blackfriars only opened recently.

Now Digme has proven the concept and brand and hit its profitability targets, it intends to roll out rapidly to become the sector leader in the UK. The original fundraise target for this round was £2 million but due to demand it was extended to £3.6 million to deliver the roll out across the UK and open a further 23 UK studios by 2022, with each site expected to be profitable within nine to 18 months.  

The forecasts in the Private Placement Memorandum are based on a £2 million funding round (since extended to £3.6 million), so there is potential for the growth to be accelerated and forecasts in the Private Placement Memorandum to be exceeded. Based on the originally planned £2 million raise, the company expects to grow sales to £26.7 million by 2022 generating EBITDA of £9.8 million. 

What to consider

This is a high risk and illiquid investment: capital is at risk.  Please ensure you read the report and the provider's documents carefully. You should not invest money you cannot afford to lose. Returns are not guaranteed. The value of tax benefits depends on circumstances and tax rules can change.  If you wish to invest, you will need to become an “elective professional client” of West Hill and confirm you have the knowledge and experience to understand the risks before your investment is accepted.

How to apply

The offer is expected to close on 30 November 2017 and we expect demand to be high. If you are interested you should:

  1. Carefully read the Private Placement Memorandum and ensure you understand the risks
  2. Complete your investor registration form for West Hill which is arranging this offer. The form also includes an elective professional client declaration. You need to complete this, even if you are already an elective professional client of Wealth Club. West Hill needs to ensure you have the knowledge and experience to understand the risks
  3. Once you submit the registration form, we will ask you to complete a short application form for Digme Fitness (you will also need to have the form witnessed) then make a payment via cheque or online bank transfer. More details are in the application form.

Wealth Club aims to highlight investments we believe have merit, but you should form your own view. You should decide based on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination. 12 October 2017.