Investing in good health

The National Health Service (NHS) is one of Britain's most treasured assets, held dear for the equality it represents. But the service costs a fortune and is a serious target for the cuts being brought in by the Coalition. Indeed, it has been earmarked for a spending reduction of around £20 billion.

Some of the reductions in expenditure will come from economising and streamlining the current processes, while it also seems inevitable that a number of staff will be laid-off. But with such a large cut in funding, it is likely that services themselves will also be affected. This leaves the obvious question of what to cut.

The prominence of what has been dubbed Britain's 'obesity epidemic' is hard to avoid when looking at NHS expenditure. Associated costs of treating obesity and related health problems are in the region of £4 billion a year, according to the Department of Health. This figure is expected to rise to £6.3 billion by 2015; a startlingly high cost for a predominantly preventable condition.

So spending on obesity is a likely target for the government when cutting the NHS bill. But what's this got to do with buying a business? In short, obesity isn't going to go away and if the NHS cannot afford to treat it, the government will need to support an alternative solution.

One such option is to promote a healthy lifestyle. Pockets of the country are starting to recognise the benefits of this already, but experts have suggested that its role in the nation's health needs to expand. Speaking to The Times, founder of the LA Fitness health club chain, Fred Turok, said: “The NHS costs us, give or take, £110 billion a year, but the government's austerity measures call for a cut of £20 billion … So then you look at how the fitness, sports and leisure sector can create a bigger role for itself.”

He added that the NHS is “not the national health service but the national illness service, because it deals with illness”, suggesting that the health sector could expand if it manages to support a healthier attitude and encourages people to embrace exercise rather than 'pills and potions' for some conditions.

This impending change in attitudes is a clear opportunity for investors looking to get involved in the health and lifestyle sector. However, while opening a new service is always an option, this could be a time when buying an existing fitness business is preferential.

The fitness market in particular has reached saturation point, with most developments since 2005 coming in the form of mergers and acquisitions rather than new openings. David Lloyd merged with Next Generation Clubs, while Virgin Active swallowed up the Esporta business. Meanwhile, Nuffield Health added the Greens chain to its operations with Cannons, all of which have now been absorbed by Nuffield.

LA Fitness itself is still going strong and has found itself serving the middle ground when it comes to fitness fans. However, its debt burden stands at around £70 million and, even after selling off some of its less economic clubs, there is some doubt about its future as the economic downturn continues to put pressure on consumers' purse strings.

There's no certainty in this game but we reckon that the ongoing reshuffle within the sector and the shifting perception of health and fitness in the UK is making health and fitness a prime acquisition target.

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