TDR Capital Prepares David Lloyd Leisure for Auction

David Lloyd Clubs

The European gyms industry is looking up, but with operational challenges to come, not everyone’s buying it.

The latest: TDR Capital (TDR), owners of premium health club operator David Lloyd Leisure (DLL), is reportedly prepping the 131-unit chain for sale in a deal that could fetch £2B.

Of note, after acquiring the chain in £750M in 2013, TDR tried to sell in 2017 – in what could have been a £1.3B sale – to no avail.

By the numbers: DLL recovered from the pandemic more quickly than many others. So well, in fact, CEO Russell Barnes went on the acquisition trail.

Despite a struggling German market, DLL opened around ten clubs in Europe since the end of 2021 – including one in Bicester and two in Madrid – and membership bounced back, beating pre-pandemic numbers:

  • 730K members in December 2022, up 8.7% from pre-pandemic
  • EBITDA of £234M
  • 2022 operating profit of £135M, up from £5M in 2021

A “premiumisation” strategy helped suppress fallout from the cost-of-living crisis, with ~52% of members paying premium rates. Making it worth it, the club has invested in its boutique programming while expanding spa retreat facilities and undergoing numerous club makeovers.

Looking ahead, DLL is tracking 46 club expansion opportunities in the UK and 550 in Europe.

M&A Market

The pandemic triggered both a slew of closures and M&As. Lockdown saw memberships and profits dive, prompting clubs to launch digital/hybrid services in the hope of treading water.

But, the switch back has been complicated. While health implications of the virus drove renewed interest in health and fitness, remote working emptied many central venues, prompting M&As and attracting private equity:

  • In late 2019, PureGym acquired Denmark’s Fitness World and secured £300M from private equity firm KKR in 2021 to catalyse global expansion.
  • RSG Group acquired Gold’s Gym for $100M in 2020, bringing its portfolio to 900 locations in six continents, while also launching HEIMAT and JOHN REED in the US.
  • In 2022, Jetts Fitness Australia bought back 129 franchised Jetts locations in Australia from FLG, as well as franchised clubs in the UK and Netherlands.

As recently as last winter, private equity was still bullish on the expansion of concepts, with Oaktree Capital Management endorsing Germany’s Life Fit Group for its takeover of 27 FitnessLOFT clubs and Rabobank and Dutch Mezzanine Fund (DMF) backing UGG’s portfolio.

Looking ahead: Given TDR’s failure to exit six years ago, an auction date alone for DLL would demonstrate that the market is in good health. But Virgin Active’s £50M equity injection and Fitness First’s controversial restructuring plan are pressing evidence the UK market is still struggling. With pandemic turbulence and uncertainty over future expansion, all eyes are on whether a deal will sink or swim.

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