Gymfinity Kids Ltd (non EIS)

Convertible debt opportunity in UK’s largest provider of children’s gymnastics and activity clubs: operated by founding team of £600+ million PureGym

Gymfinity Kids Limited (“Gymfinity” or the “Company”) was set up by Peter Roberts, the founder of PureGym, the UK’s largest gym chain, after selling it for £600+ million in 2017 (a 17x return). 

Peter saw an opportunity to replicate the success and model of PureGym in the children’s activity club sector, an underserved market. 

He sought to create a chain of nationally recognised, branded activity clubs for children aged 3 months to 16 years, offering gymnastics, “Ninja Knight” and dance classes.

The Company is run by industry specialists, with many of the management team having previously held senior roles at PureGym during its phase of rapid expansion leading to the final exit. The directors and senior management have to date invested £8.2 million.

In 2023, Gymfinity acquired Beth Tweddle Gymnastics (BTG - a profitable two-site gymnastic club business in the North West which also operated 8 community clubs) in a share-for-share transaction.

Gymfinity now operates 21 sites with 15,300 members, growing organically 32% year on year (not including the BTG acquisition). In 2023, the business generated £7.7 million revenue and had an EBITDA loss of £1.3 million. At the end of Q1 this year, the Company grew run-rate revenue to £10.9 million and achieved broadly break even after all central overheads. 

With the existing estate close to sustained profitability, management is seeking additional capital to accelerate the rollout of this successful format. 

Gymfinity is looking to raise up to £2 million under an unsecured convertible loan note (CLN). 

Investors can elect to receive 12% interest paid half yearly or 15% non-compounded interest paid on the fifth anniversary along with return of capital. In year 2, investors can opt to convert the loan into shares at a discount if they wish to participate in the forecast capital growth. £0.5 million has already been invested under this CLN by management and existing shareholders. 

Wealth Club investors can participate – there is an exclusive allocation of £500k; the minimum investment is £20,000 and you can apply online. 

Predicated on successfully raising the required capital, the Company forecasts to grow to 97 sites and deliver sales of £31.9 million and EBITDA of £5.2 million by year 5 – not guaranteed.

Based on the Company’s forecasts, investor target return is 1.6x to 2.4x (12%-21% IRR) after fees depending on whether investors choose to receive just cash interest or convert to equity.

To achieve these forecasts, management believes the business requires a further £1.5 million equity after this round. Equity investment is expected to come from both existing and new investors – not guaranteed. Direct lending to developing, successful but still early-stage companies is risky – you should form your own view. This is an unsecured loan. Forecasts are not guaranteed. These are unlisted bonds/loan notes with an unregulated issuer. Capital is at risk. 

The deal at a glance

Company by numbers

• Members: 15,300
  
• Year-on-year member growth: 74% (32% organic)
• Run-rate revenue: £10.9 million
• Run-rate operational EBITDA: £2.5 million before central overhead
• Run-rate EBITDA – break even after central overhead
• Existing estate: 11 Gymfinity Clubs, 10 Community Clubs
• EBITDA potential of existing estate: £2.3 million after central overheads
• Profitability forecast: Y1 and sustained throughout forecast period
• New club initial capex and payback period: £550k / 45-60 months
• New community club initial capex and payback period: £15k / 24 months
• Year 5 EBITDA forecast of over £5 million aiming for sale value of just under £60 million – not guaranteed

Risks – important

This is a single company offer with no diversification. It involves investing in an early-stage, loss-making business, which is by nature high risk and prone to failure. There is a risk that the capital raised may not be sufficient to achieve the Company’s objectives. You could lose all the amount you invest.

Loan note interest is normally subject to 20% UK withholding tax deducted at source. The loan notes are unsecured but, as debt instruments, rank ahead of all equity. Interest and capital repayment are not guaranteed.

There is no ready market for unlisted securities: they are illiquid and hard to sell and value. There will need to be an exit or redemption event to fully realise your investment. While management believes that an exit could be achieved in five years, the timing of any liquidity event is uncertain and may take longer than expected.

Before you invest, please carefully read the Investor Presentation which contains further details on the considerable risks – alongside the Wealth Club Risks and Commitments.

Fees and structure

Investors will pay no direct initial or ongoing charges to invest. Fundraising costs are being met by the Company. Wealth Club will be entitled to a performance fee on exit. 

Wealth Club investors will invest using a nominee structure. This service is provided by Wealth Club’s subsidiary companies Wealth Club Asset Management Limited (authorised and regulated by the FCA) and Wealth Club Nominees Limited. Wealth Club Nominees Ltd will be completing the subscription documentation on investors’ behalf.

Please refer to the Schedule of Charges for more details on charges.

All the services Wealth Club and, where applicable, its subsidiaries provide are governed by the Terms and Conditions of the Wealth Club Services.

Our view

Gymfinity has successfully built a network of cash-generative sites, demonstrating a track record of repeatedly delivering the new site blueprint and bringing those sites close to maximum occupancy. The acquisition of BTG in 2023 adds a new dimension to the growth strategy: it could help the business scale more efficiently with lower cap-ex requirements and make efficiency gains through word of mouth marketing.

In our view, the management team is highly credible – having successfully built and exited a similar B2C, membership-based, large box format business at PureGym. The management team has invested considerable amounts of their personal wealth into the business and is also participating in this investment round alongside new investors.

That said, the expansion plan is not without risk, and fluctuations in business performance or the failure to secure the additional capital required could impact the business’ ability to keep up with loan note interest payments.

We consider this to be a compelling, albeit high-risk investment opportunity – as usual you should form your own view.

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – investments. You should base your investment decision on the offer documents and ensure you have read and fully understand them before investing. The information on this webpage is a marketing communication. It is not advice or a personal or research recommendation to buy any of the investments mentioned, nor does it include any opinion as to the present or future value or price of these investments. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.