Quadrant’s Fitness Lifestyle Group in focus

Fitness and Lifestyle is being hit from all sides in the current economic environment.

Quadrant Private Equity is targeting a sale process for its $1bn-plus Fitness and Lifestyle gyms business in about a year, as it looks to rebuild the business after the pandemic.

The company that fought for survival during the pandemic and came close to collapse is again in focus, with a $1bn-plus debt pile.

Fitness and Lifestyle is being hit from all sides in the current environment – soaring funding costs and weaker consumer sentiment in an inflationary environment where discretionary spending is being cut back by households wrestling with growing mortgage payments.

But despite the spiralling cost of debt across the board no doubt taking its toll on the operation, lender HPS is said to have offered support to the company and will work with Quadrant should any issues arise, say sources.

HPS is understood to have refinanced the full debt syndicate on Fitness and Lifestyle just before the pandemic.

For the year to June 30, 2022, Fitness and Lifestyle accounts show it generated a $200m loss after losing $177m in the prior financial year.

Revenue was $482m and gross profit was $439m, while staff costs were $177m and finance costs $174.4m.

“While the group has incurred losses before income tax contributing to its net liability position, it continues to generate significant cash earnings,” auditors PwC said.

“Due to the tenure and structure of the group’s recently refinanced borrowings and its ability to recapitalise if required, the directors have reasonable expectation that the group has adequate resources to continue in operational existence for the foreseeable future.”

Senior debt facilities are due in January 2024. Net debt was $1.8bn at June 30, 2022.

The accounts said lenders had requested an updated plan of possible opportunities to sell the group or assets, refinance debt or recapitalise outstanding facilities.

Quadrant is focused on boosting earnings over the next year.

Putting the business into voluntary administration would be a huge call for Quadrant and sources close to the private equity firm say this is not on the cards.

Quadrant managing partner Chris Hadley is known to be strongly adverse to such a move when portfolio companies strike challenges.

In the past, he has stepped into distress situations to work with lenders and recapitalise companies to ward off collapse.

It is understood Quadrant fielded offers for parts of the portfolio, including its New Zealand gyms operations, between late last year and April, fuelling suggestions a sale could be on the cards.

But Quadrant’s plan is to sell the company in one line, despite being approached by prospective acquirers keen for a break-up.

KPMG is also thought to be close to Fitness and Lifestyle.

Quadrant created Fitness and Lifestyle around 2016 through a series of acquisitions.

It purchased Goodlife Health Clubs from Ardent Leisure in 2016 for $260m, after the acquisition of Jetts Australia (reportedly for less than $100m), and Fitness First Australia from Oaktree Capital for no more than $300m.

The private equity firm lifted performance by driving membership growth.

Although the gym operators faced closure during the pandemic, sources say its performance bounced back.

But the recovery across the gym industry has not been as strong as expected.

Earlier this year, F45 gyms in Australia collapsed into liquidation, demonstrating the challenges some businesses have faced.

Before Covid-19, there were efforts to sell Fitness and Lifestyle for about $1bn, with US-based Berkshire Partners a suitor, but it was taken off the market.