Golden returns draw investors to fitness markets

Reuters/Hamad I Mohammed

• Demand for gyms picking up
• 30% annual growth rate
• ‘Proliferation’ of investments

Investors are showing increasing interest in homegrown fitness companies, tempted by the “golden egg” returns on offer.

The fitness market in the Middle East and North Africa (Mena) has been growing at an annual rate of 30 percent since 2020, with the UAE sector valued at an estimated $550 million and Saudi Arabia at $1.7 billion.

Dimitri Koutsoubakis, CEO of Wellfit, which is backed by the UAE developer Arada, says the top line on the capital expenditure involved in opening a gym could increase by as much as 130 percent three years after opening, “if you’re doing your job right.”

He says: “You’ve got a goose that lays that kind of golden egg.”

One angel investor told AGBI this week that they had never seen as much interest from VCs in the industry, while private equity and private credit companies are also playing a key role in the funding and expansion of local brands.

The legacy brand Fitness First has been through a “period of discovery”, according to CEO Mark Buchanan, with a programme of refurbishments and openings under way across the UAE.

“I think there’s a proliferation of quite small players and individual clubs and a lot of good quality innovation and investments being made,” he says.

“I don’t think we’re anywhere near suffocation of the market.”

Demand for fitness centres is fuelled by a low pick-up rate, which reaches 7 percent in the UAE and 8 percent in Saudi Arabia.

Salameh Swiss, CEO of thre private equity company Levant Capital, who completed a majority investment in the UAE-based Warehouse Gym in September, says: “Penetration rates can rise to double these figures, depending on localised demographics.”

As a comparison, 16 percent of the population in the UK has a gym membership and 21 percent in the US.

Koutsoubakis says: “It used to be difficult to get money. If you wanted to get VC backing or PE [private equity] backing, you had to rely on your network. But that is changing.

“It has to be that serious professional money comes and finds the serious professional entrepreneurs. If done the right way, it’s a very lucrative business.”

In November last year, GymNation of the UAE completed a management-led buyout of all equity held by the previous investor, JD Gyms. The deal was backed by Tricap Investments and Ruya Partners.

Crowdfunding

Since then, the business has doubled, with 10 openings this year, six of which were in Saudi Arabia. At least a further 20 new gyms are planned for 2025.

At the time, GymNation’s founder and CEO, Loren Holland, had talked about a crowdfunding model to raise extra capital, allowing the gym’s members to own a stake in the company.

Holland, who spoke at the recent Dubai Active Industry event, says this remained a potential option.

“As and when the next requirement might come to accelerate growth or for any funding, then we’d love to open that up to our loyal member base and have them almost partake in the growth of GymNation and help fund the future expansion,” he says.

Holland says that a listing could be another option, following on from the success of Leejam Sports Company in Saudi Arabia. The Riyadh-based fitness centre operator floated 30 percent of its capital, raising $220.6 million in 2018.

In its most recent results , GymNation reported a net profit of SAR355 million ($94.5 million) for the first nine months of 2024.

“We’re financially very strong and we can fund our own growth. But at some point we would consider a capital event. An IPO would be one option that we could consider,” Holland says.