Pure Gym Group Plc has cancelled its proposed stock market float, blaming a challenging market.
A brief and somewhat contradictory statement highlighted that the board decided that amid the current ‘period of market volatility’ the IPO wold not be in the long term interest of the company and its shareholders.
Whilst citing challenging conditions, the group also claimed to have seen “strong interest shown by potential investors.”
In September the company launched its IPO process, seeking £190mln of new capital. The majority of the cash had been earmarked to repay the group’s debt in full.
In the first half of 2016 Pure Gym earned £16.5mln (adjusted EBITDA) from £76mln of revenue.
Humphrey Cobbold, Pure Gym chief executive, today said: “Pure Gym’s excellent growth track record and market leading position give us a solid platform for further expansion in the attractive gym market.
He added: “Current trading is strong giving us further confidence that we can capitalise on the significant market opportunity and encourage even more people to become fitter and healthier.”
This is the second time significant corporate plans failed to materialise.
Pure Gym agreed a merger with Gym Group Plc (LON:GYM) in 2014 before dropping plans as the Competition and Markets Authority referred the plan for in-depth evaluation.
It nevertheless moved on, appointing a new chief executive shortly after and subsequently acquired the LA Fitness chain in May 2015.
Gym Group, meanwhile, floated in London nearly a year ago. At that time it raised £90mln from the sale of shares at an IPO price of 195p. The share got off to a good start, rising to highs of around 280p this spring.
Since then, however, sentiment has turned and the share presently changes hands beneath last year’s IPO price – today the price is 177.5p.
Investment bank Berenberg in a recently noted that investors main concerns have centred on margin sustainability and returns from its maturing sites.
The strategy for both Gym Group and Pure Gym is to open up ‘pay as you go’ sites which undercut higher priced competitors that require contracted memberships.
Berenberg highlighted that the proposed Pure Gym float had been a factor in the decline in Gym Group price recently, due to investor ‘repositioning’ as well as the company’s own recent secondary equity issue.
“Yet, given that the underlying story remains unchanged, we see the recent pull back as a clear buying opportunity,” Berenbergy analyst Owen Shirley said in a note.
Berenbergy has a ‘buy’ rating and a 300p price target for the Gym Group shares which, as the bank noted, are priced at more than 25 times earnings at current levels.
Story by ProactiveInvestors