Chris Hughes is a Bloomberg Gadfly columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.

(Corrected )

The latest addition to the European stock market is high-class Italian fitness supplier Technogym. It's an IPO where the gain comes with some pain.

Technogym designs, builds, sells and services top-end equipment for burning calories. There's also an ambitious digital strategy connecting it all to the Internet. The company targets the gamut of premium customers: gyms, hotels, spas and rich people. The strategy is to sell more kit and take market share as demand for "wellness" grows.

Leisure Has Outpaced the Market
But outperformance is narrowing
Source: Bloomberg

Founder Nerio Alessandri is at the center of it all. The business dates back to 1983 when he built a "hack squat" machine in his garage. Last year, revenue was 512 million euros ($578 million), and profit after tax was 28 million euros. It's hard to find such direct exposure to this segment of the fitness market. Finland's Amer Sports, worth 3.1 billion euros, sells gym equipment plus baseball bats and bike pedals. Nautilus of the U.S., worth $582 million, targets consumers more broadly.

Fit for Purpose
Sports kit companies enjoy double-digit forward earnings multiples
Source: Bloomberg

Technogym's digital strategy and potential to expand in the U.S. suggest it might grow faster than peers. That's not a given though. It's no start-up. Sales growth slowed from 13 percent to 10 percent last year. Technogym isn't raising growth capital -- the shares are being sold by its exiting private-equity partner, a rare example of recent action in the moribund IPO market.

Assume Technogym makes Ebitda of 91 million euros this year, up from 87 million euros last year. That implies an enterprise value of 1 billion euros on the sector's 11 times forward enterprise multiple. The equity value would be 875 million euros after adjusting for net debt. Apply an IPO discount of 10-15 percent and the valuation would be about 745 million euros. The deal's price range is a more conservative 600-750 million euros, but there's a reason for that.

The snag is that Technogym will look like a family firm that happens to have some traded shares. Being a minority investor may be a test of endurance. The free float will be an illiquid 28.75 percent at most. The Alessandri family retain the rest of the stock. The board has some outsiders, but Alessandri will be firmly in charge as chairman and CEO. His brother is deputy. His daughter is a director too. Going public will require a cultural shift. A clumsy declaration of the dividend policy in Alessandri's IPO press conference -- forcing a clarification -- shows the learning curve ahead.  Factor all this into the IPO discount calculus, and the bottom half of the range looks good value. 

Technogym isn't the first company with a dominant shareholder and culture to go public. It's alive to the benefits, such as enfranchising top managers with stock. Investors can't have entrepreneurialism and blue-chip liquidity and governance on day one -- that would be having a big cake and eating it. Alessandri wouldn't like that.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

(A previous version of this story was fixed to say Nautilus is based in the U.S.)

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Chris Hughes in London at

To contact the editor responsible for this story:
James Boxell at