Viva to add 197 gyms to network as part of acquisition deal

Viva will almost double its membership as part of a $20m buyout of Australian Fitness Management, the master franchisor of Plus Fitness gyms.

Harry Konstantinou the CEO of Viva Leisure Limited pictured at one of the company's his gyms in Canberra.

Gym owner Viva Leisure is bulking up with the acquisition of Australian Fitness Management, the franchisor of 197 Plus Fitness gyms, in a deal worth as much as $20m.

The $18m deal, with an additional $2m subject to performance, is expected to be sealed by the end of next month on the condition of a restructuring of AFM’s existing leasing deals.

The move comes as most gyms around Australia have begun to reopen after the coronavirus lockdown, although social-distancing measures are keeping members away.

AFM offers Viva a line into India and New Zealand, with four and three gyms in those countries respectively, which Viva chief Harry Konstantinou said opened up opportunities.

“Viva sees that as an opportunity to grow franchises in New Zealand as well as corporate-owned enterprises,” he said.

The acquisition was struck on an earnings multiple of eight times and will be funded through existing cash reserves after the group tapped the market for $25m just last month.

AFM generates $100m in annual revenues from its almost 175,000 members. The merger takes Viva’s memberships to more than 270,000, making it the third largest by membership or fourth largest by network.

Viva plans on opening at least 18 more Plus Fitness gyms this fin­ancial year, with deposits cov­ering as many as 40 new gyms.

Mr Konstantinou said there was unlikely to be much crossover between existing Viva clubs and Planet Fitness gyms and the acquisition allowed them to revisit areas previously deemed unsuitable for a Viva club.

“We’ve looked at all the Plus territories and Viva territories and there’s hardly any overlap across them,” he said. Mr Konstantinou said Viva was targeting 20 to 30 acquisitions from Plus Fitness fran­chises in the next 12 to 24 months as part of its overall target of 50 buyouts.

“It’s not our intention to push any franchises out of business. We will acquire any franchisee that wishes to exit,” he said.

Viva gains the first right to refuse to acquire any franchised club for sale.

AFM founders John Fuller and Nigel Miller will remain on for 12 months. The two intend to hold on to their 14 Plus Fitness gym franchises.

Viva chief financial officer Kym Gallagher said the gym operator would continue to look at acquisitions.

“This is the last master franchisor of any size that’s for sale, it made sense to get it at a reasonable price,” he said.

He said Viva was looking to boost its borrowing capacity from its existing facilities beyond its $2m cap to better fund future acquisitions. “Debt at the moment is just so cheap. It makes a lot of sense to get the debt if we can get it,” he said.