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Did General Atlantic Bag A Bargain With Gymshark?

Gymshark’s meteoric rise from teenager Ben Francis’ bedroom in 2012 to billion pound global brand is complete.  This feat is made even more astonishing as the fitness apparel designer has never raised a penny of external equity capital.  Its new shareholder, US growth investor General Atlantic, was attracted to the structural growth of the leisurewear category, as well as the online only, direct-to consumer model that allows Gymshark to connect directly to its audience without the baggage of physical stores and complex distribution channels.

As befitting Gymshark’s valuation, the company’s progress has been at an astonishing pace.  Sales are now running at £250 million and we expect operating margins (earnings before interest and tax) to be north of 10%.  On this basis, General Atlantic’s investment values the business at around 4x revenue and, we estimate, 35x EBITDA.

Recent deals in the sector include cycling brand, Rapha Racing, which was acquired by RZC Investments for 2.5x revenue and 33x EBITDA; and luxury beach and swimwear brand Orlebar Brown, sold to Chanel for 2x revenue (source: MarktoMarket).  Regarding public market sportswear brands, we have to look to the US for comparison, where Nike as well as relative newcomers Lululemon Athletica and Under Armour trade; and Germany, where Adidas and Puma are listed.  The sector average Enterprise Value (EV) to Revenue multiple is 4.2x but this is skewed by Lululemon, which trades at an eye-watering revenue multiple of 11.9x.  On an EBITDA measure, the simple average multiple is 33x, with a range of 20x (Under Armour) to 47x (Lululemon).  Lululemon’s premium rating can be justified by sector-leading operating margins of 22% and 5 year compound revenue growth of 16%, as well as its entrenched foothold in the fast-growing yoga market (source: Thomson Reuters).

However, none of these businesses can hold a candle to the sales momentum of Gymshark, with compound annual sales growth running at over 200% since 2016.  With (relatively) low sales of £250 million (the next smallest business in our sportswear sample by turnover is Lululemon with $3.3 billion) and recent entry into the gargantuan and lucrative US market, Gymshark looks like it can continue its revenue outperformance.  Its model also ensures that gross margins of 67% are materially higher than its peers and gives more scope to deliver leading operating margins.

So, did General Atlantic get a good deal?  In our view, they bagged a bargain.

EV/Revenue - Sportswear and UK Fashion Brands vs Gymshark

Gross Margins - Listed Fitnesswear Brands vs Gymshark

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