M&A Deals Capital Markets

Gymshark: the UK’s latest Unicorn, what’s in its £1bn Valuation?

This August marked a significant landmark for the UK’s fastest-growing affordable sportswear brand Gymshark, receiving a valuation of over £1bn for the first time — a significant milestone which catapults Gymshark into joining just less than 25 British companies with “Unicorn” status.

Being very much a millennial-targeted brand, Gymshark is an entirely e-commerce business which markets its products to socially-engaged, young 18- to 31-year-olds, offering a tailored-fit range of sportswear attire and an active social media presence. Founded in 2012, it has gone from strength to strength, having been formed in a garage in Birmingham by its founder Ben Francis, to now employing over 400 employees.

Founded: 2012
Founders: Benjamin Francis & Lewis Morgan
Type: Private (since founding)
Industry: Consumer Goods; Personal Goods
CEO: Steve Hewitt (Ben Francis retains 70% ownership)
HQ: Birmingham
Market Cap: N/A (Private company)
Revenue: £176m (as filed 2018-19)
EBIT: £18.6m (as filed 2018-19)

History of Growth

Last year, Gymshark, having doubled its annual sales, sought out advisors PwC to advise upon its expansion abroad to the US and Asia markets, which Paul Richardson, Executive Chairman, says “have huge relevant populations and therefore will drive a huge demand.”  Gymshark also sought to raise over £100m in capital in the form of either debt or from the sale of an equity stake.

From our own analysis of Gymshark’s financial statements [see Analysis 1 below], we have found strong growth, with turnover more than doubling between 2017 to 2018, from £40.5m to £103m, then increasing further between 2018 to 2019 from £103m to £176m.  Annual sales growth between 2017 to 2018 was 154% and between 2018 to 2019 was 71%.  An average 3-year growth of 141% places Gymshark in 10th position on the Sunday Times Fast Track 100 2019 — a ranking of Britain’s 100 private companies with the fastest-growing sales over the last three years.

With no debt on its balance sheet up until 2018, Gymshark has financed its expansion using its own cash flow.  £6m of debt was sought in 2019, resulting in Gymshark’s debt-to-capital ratio rising to 13.6%. [see Analysis 2 below]

[Analysis 1]

2017-2018: Gymshark Income Statement (from Companies House):

  • Turnover doubled from £40.5m at July 2017 to £103m at July 2018
  • Annual sales growth between 2017 to 2018 was 154% [=(103m – 40.5m) / 40.5m]
  • Net income for 2018 was at £14.2m, increase from 2017’s £9m

2018-2019: Gymshark Income Statement (from Companies House):

  • Turnover increased again, from £103m at July 2018 to £176m at July 2019
  • Annual sales growth between 2017 to 2018 was 154% and between 2018 to 2019 was 71%
  • Net income for 2019 was at £15m, increase from 2018’s £14.2m
  • Net profit margin (ratio) = Net Income/ Sales = £14,991,326 / £176,164,068 = 8.51%

[Analysis 2]

2017-2018: Gymshark Balance Sheet:

2018-2019: Gymshark Balance Sheet:

  • Gymshark has funded its expansion from cash flow and has no debt on its balance sheet, up until 2018
  • In 2019, Gymshark sought bank loans with a principal balance of approx. £6m
  • Debt-to-capital ratio = Debt/ (Debt + Equity) = £6m / £38.2m + £6m = 13.6%

General Atlantic’s Investment Deal

Last month, General Atlantic acquired a 21% stake ownership of Gymshark, raising £200m and valuing Gymshark at over £1bn; the deal was advised by RBC Capital Markets (an investment bank). General Atlantic acquiring just a 21% stake and one seat on Gymshark’s Board may likely have factored into why Gymshark selected them over larger, more prominent private equity investors KKR and Bain Capital, preferring a less aggressive approach towards the management of its expansion into the US market.

For Gymshark to reach over £1bn with just one round of investment — is this plausible? Well firstly, Gymshark has been in operation for almost eight years and is undergoing its rapid expansion stage.  To value Private companies, the most likely method would have been the more complex DCF method, as Gymshark has close to eight years’ worth of financial statements and thus a projection of the company’s unlevered free cash flow and its terminal value can be ascertained.  However, even with this information, there is a high degree of estimation, assumption and speculation for the projected future cash flows and chosen discount rate.  

The bottom line is that it is difficult to calculate the exact value of a private company, given the:

  • Large extent of assumptions that must be made for projected future cash flows
  • Availability of comparable company data for any of the valuation methods
  • Limited ability to calculate the beta of private companies, to find the cost of equity, and thus WACC (which forms the discount rate for the projected cash flows)

Indeed, these speculative details would have been the subject of intense scrutiny upon the deal’s negotiation between Gymshark and General Atlantic.

Strengths of Gymshark going forward

Growing focus on health, post-COVID-19

McKinsey, a consulting firm, has reported that as the pandemic subsides globally, the case for home fitness and personal health and wellbeing will grow as vigilant consumers look to boost their immune system and sustain their general levels of fitness and mental wellbeing during prolonged periods of reduced mobility, when working from home.

Fashion e-commerce has been successful over the pandemic, with ASOS seeing its total revenue actually rise 10% over the lockdown period between March and June, fuelled in particular by demand for loungewear and fitness wear, despite the backdrop of rising unemployment amongst its equally young customer base.  

Gymshark’s strength thus far has been its agility in responding to rapidly-changing world events. This agility is factored by the company’s preference, from the outset, for digital presence instead of an on-the-ground high-street presence. Gymshark stays relevant by responding to timely events such as Black Friday promotions, employing personal trainers to stream workouts over lockdown, and raising money towards the NHS with charity campaigns like #NHSsweatyselfie.  Highlighting the strengths of their latest investment, Gabriel Caillaux, head of General Atlantic’s business in EMEA, described Gymshark as “authentic, disruptive and differentiated” as a brand.

Expanding Gymshark’s range of product offerings

Gymshark’s assets recently expanded to include a newly-developed HQ in Solihull, Birmingham, functioning as a product-testing, wellbeing and innovation hub, as well as housing a Gymshark Lifting Club (GSLC). The 55,000 sq ft space includes a state-of-the-art gym, 100-person auditorium, R&D factory, film and photography studio for marketing, alongside HQ offices. A new Gymshark fitness app is in the pipeline to be developed and launched.

Going forward, Gymshark will continue to compete through its offering of covetable yet affordable products, coupled with high-quality digital customer experience and a strong brand identity which resonates on a personal level with each and every one of its target audience. 

The founder Ben Francis, has said “I firmly believe Gymshark has the potential to be to the UK what Nike is to the US and Adidas is to Germany and today is a significant step to realising that.”


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