Consumer

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

Planet Fitness is a sponsor of the weight-loss reality show "The Biggest Loser." When it comes to the company's investors, short-seller Spruce Point Capital can lay claim to that moniker for now.

Six months ago, Spruce Point went public with its recommendation that Planet Fitness was a "strong sell" and could be worth as little as $4.65 apiece (it was then trading around $15). The firm highlighted governance concerns and questioned the low-cost gym operator's growth forecasts and accounting practices, among other things. Some on Wall Street followed its footsteps in betting against the stock. 

Tapering
The number of investors betting against Planet Fitness peaked after a short seller published a report in March, but has since retreated after two quarters of strong earnings
Source: Markit, Bloomberg

But since then, the company posted two quarters of better-than-expected earnings and lifted its full-year outlook. Short interest has fallen to 10.7 percent, well down from its high of 30 percent and on the flip side, its shares marched to a record high of $22.81.

Hoping to take advantage of Planet Fitness's ascension is its majority owner, private equity firm TSG Consumer Partners. On Thursday, it filed for the ability to sell its remaining stake any time over the next two years, for as much as $1.2 billion.

Working Out
TSG plans to sell the gym operator's shares for as much as $21.91 each; they'll likely be sold at a discount due to the volume being offered
Source: Bloomberg

All up, the firm may end up banking as much as $1.7 billion, including proceeds from the fitness provider's August 2015 initial public offering, a separate share sale this past June, dividends and management fees. That could lead to a return of almost seven times its initial investment, based on a conservative estimate that TSG paid for half the $505 million deal with equity. Such a home run would be icing on the cake for investors in TSG's sixth fund, which was already sitting on a 45.9 percent net return as of Dec. 31, according to data compiled by Bloomberg. 

Barring any surprise hiccups in Planet Fitness's performance (which would validate Spruce Point's theory), the private equity firm is poised to lock in a textbook exit in an industry where the fittest thrive. Thanks to past performance, TSG needed just three months to raise $2.5 billion for its latest funds. 

But now comes the hard part: finding the next Planet Fitness. 

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

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net