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Pure Gym confirms it has abandoned today's IPO

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Humphrey Cobbold, CEO of Pure Gym, has confirmed this morning to Health Club Management that the company has "withdrawn" plans for today's IPO, saying: "Given the challenging IPO market conditions, the board has decided not to proceed with a listing, despite the strong interest shown by potential investors."

According to investor sources, Pure may not have created a strong enough story for investors around why it needed the funds and what it planned to do with them, with its relatively inexperienced management team and Cobbold's lack of operating experience in the health club sector also being contributory factors.

In addition, there are questions about whether the IPO came too soon after Pure's acquisition of LA Fitness and before Cobbold had made a clear enough statement about the progress of that integration.

City investors have long memories and there are still those who remember the 90s and got burned when health club operators overextended themselves. While there is no suggestion that Pure is in this position, many investors lack knowledge of the sector and simply see a company which has made a series of big deals.

However, a source close to Pure Gym highlighted the “general poor conditions” for an IPO in the light of Britain leaving the European Union, the rhetoric around ‘Bad Brexit’ and the value of the pound plummeting.

Pure Gym’s budget rival the Gym Group completed its own IPO last year, and initially experienced strong trading. But since mid-September its shares have fallen from 226p to 188p today (11 October), with the dip partially influencing the decision of Pure Gym.

“The company had two options: drop the price of the shares, or walk away from the deal,” said the source.

An alternative view is that Gym Group may have scooped up the majority of investors who are currently interested in this industry, leaving less support available for Pure Gym, although a number of city analysts have referred to the latter’s underlying business model as “very attractive”.

“They are growing quickly and they are generating excellent returns,” said Numis analyst Wyn Ellis.

If market conditions have made it difficult for health club operators to float, then the sector will need to pause and reflect on how future growth can be funded and how it can expand if can't get access to funding via this route, especially given Pure's strong trading position as one of the industry's leading operators.

Building more and better facilities in which people can exercise is a vital part of the wider activity agenda and if the industry is to thrive, then operators need access to capital.

It is not yet clear whether Pure Gym will attempt to float for a third time in the future. The organisation’s initial move to launch an IPO was stopped following the EU referendum result in June.

“Pure Gym will reflect on what has happened and wait for the dust to settle before making its next move,” added the source.

Background briefing

Pure Gym's sale opened on 28 September, with trading previously expected to start today (Tuesday)

Pure Gym's CEO, Humphrey Cobbold announced on 14 September that the company would be using the IPO to raise £190m to pay off debt and bolster “future growth opportunities”, saying: “We are ready to become a listed company."

Pure Gym's route to market has been a complicated one. Earlier this year, Health Club Management revealed that Cobbold pulled the plug on plans for an earlier IPO, citing the UK’s volatile markets following the Brexit vote as the cause.

Founded in 2008, Pure Gym is the largest gym operator in the UK by both number of gyms (163) and number of members (785,770).

In the first half of 2016 the company opened 27 new gyms, 16 of which were conversions of previously acquired LA Fitness premises. Revenue over the six months was £76.6m, up 51 per cent compared with the first half of 2015.

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Humphrey Cobbold, CEO of Pure Gym, has confirmed this morning to Health Club Management that the company has "withdrawn" plans for today's IPO, saying: "Given the challenging IPO market conditions, the board has decided not to proceed with a listing, despite the strong interest shown by potential investors."
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