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IPO market getting healthier thanks to deals like SoulCycle
[NEW YORK] Wall Street is betting health-conscious companies like SoulCycle Inc and Planet Fitness Inc are more than fads and their IPOs will help whip their portfolios into shape.
A health and fitness craze in America has taken over the initial public offerings market. SoulCycle, a chain of studios for aficionados of stationary bicycling called spinning, filed for an initial public offering on Thursday. Gym chain Planet Fitness and Amplify Snack Brands Inc., maker of Skinny Pop popcorn, are expected to price their IPOs next week.
These deals are a reflection of the sentiments of the broader population: Consumers increasingly care about what they eat and how they burn off those calories - and they're willing to pay up for it. That has translated into strong revenue growth and profits for some specialized fitness and health-related companies. Yet other conventional ones, like Town Sports International Holdings Inc., have struggled, underscoring the risk to investors buying into a fad that can fizzle.
"They're growing faster even though the rest of the industry is slowing," said Kathleen Shelton Smith, principal at Renaissance Capital, a research firm for IPOs. "There's pricing power because there's a thesis that you're buying something with more quality."
Half of Americans said they were willing to pay a premium for healthy food, according to a January study by the Nielsen Co. Healthy attributes were most important to millennials, or those ages 21 to 34, followed by Baby Boomers, or 50 to 64, the study showed.
This trend has trickled down into the financials of companies like New York-based SoulCycle, which said each of its studios generated US$4 million on average last year. The classes that generally cost US$34 for 45 minutes have attracted droves of fitness fanatics - 300,000 unique riders, according to the filing. Revenue jumped 49 per cent to US$112 million, and net income expanded 42 per cent, as more riders joined.
Snack Brands, which picked the ticker symbol BETR to indicate better-for-you food, is preparing for an IPO valued at as much as US$240 million that's set to price Aug 4. Planet Fitness, the US$10-per-month gym chain, plans to price an IPO Aug 5 that could raise as much as US$216 million, data compiled by Bloomberg show.
In a year that's seen 31 per cent fewer IPOs in the US compared with the same period last year, health-conscious deals have stood out. Fitbit Inc, which makes devices that track everything from exercise to sleep patterns, raised US$841 million in a June stock offering, almost double what it had initially been marketing, due to high demand for the shares. The stock is 125 per cent higher in the 30 trading days since the San Francisco-based company went public.
Blue Buffalo Pet Products Inc - which makes food for cats and dogs with premium ingredients - is trading 36 per cent higher than its IPO price. Including an overallotment allowing the sale of additional shares, the Wilton, Connecticut-based company and previous stockholders raised $778 million through its July IPO - about 50 per cent more than originally sought.
More conventional health and fitness chains haven't performed well recently in the stock market due to the increased competition.
Life Time Fitness Inc was 11 per cent below its 2007 high when reports said the gym chain was in talks to be acquired by a private equity firm in March. The company was acquired by Leonard Green & Partners and TPG for US$4 billion in June.
Town Sports - which owns New York Sports Clubs and Boston Sports Clubs - has declined 56 per cent over the past year as it posted losses and declining sales.
Whole Foods Market Inc is experiencing the same phenomenon. The stock tumbled on Thursday after posting disappointing results and cutting its sales forecast in a sign that the organic grocer is losing its edge.
Regardless of the latest trend, though, businesses for the health-conscious seem to be here to stay.
"It may be a generational change about what's considered important," Renaissance's Mr Smith said. "It's about being healthy."