The Gym Group Plc's (LON:GYM) acquisition of 18 gyms from Lifestyle Fitness for £20.5mln offers significant opportunities to pump up revenues and make cost synergies, said broker Numis, which rates the shares a 'buy'.
The stock was among the top risers in early deals in London - gaining 8.5% to stand at 219p (Numis has a target price of 263p).
The 18 sites being bought generated £3.45mln in underlying earnings (EBITDA) in 2016, representing a transaction multiple of 5.9 times' enterprise value/EBITDA, said analyst Kathryn Leonard.
Consequently, there are significant opportunities to generate revenue and cost synergies and the group expects the transaction to be “significantly earnings enhancing by 2019”, she noted.
"The acquisition strengthens The Gym Group's position in the Midlands and North in areas where we are currently underrepresented and accelerates our expansion plan, chief executive John Treharne said in the group's earlier statement.
It expects to open 20 new sites under its organic rollout programme in 2017, having opened 15 new sites in 2016 and 19 new sites in 2015.
Ten of the Lifestyle sites will be converted to The Gym brand immediately and the company expects these sites will have been converted by the end of the first quarter of 2018.
"These 10 sites are anticipated to have the potential to perform strongly with maturity expected to be shorter than the group’s normal two-year profile due to the existing membership base," the firm also said earlier.