Investors to ride swell of SoulCycle enthusiasm in coming IPO

Early on a summer morning in Manhattan’s Upper East Side, dozens of mostly young, svelte women file into a quiet, candlelit studio where they mount gleaming stationary bikes. Soft clicks can be heard as they fasten their shoes to the pedals. Suddenly, a thumping beat blares through speakers as the room is illuminated in a soft lavender glow. The 72-strong pack begins to pedal in sync. The leader cajoles the cycling pride: “Forget about the job. Forget about the kids. These 45 minutes ... are ... all ... about you!”

This is SoulCycle: A sort of spinning, self-help therapy session with dim lighting and a primal dance beat. In recent years, SoulCycle has developed a cultlike following among celebrities like Victoria’s Secret models and hedge-fund wives alike. But nowadays, its biggest fans might be the Wall Street financiers hoping to ride the SoulCycle craze to big bucks with an initial public offering in the coming weeks.

SoulCycle started with a single studio in 2006 on Manhattan's Upper West Side. But its rapid expansion in recent years - it now operates 41 locations nationwide - has been fueled by wealthy investors, including the billionaire real estate mogul Stephen M. Ross, whose company, Related, is building the Hudson Yards development in Manhattan and owns the health club chain Equinox, which acquired a majority stake in SoulCycle in 2011. Two of the women who started SoulCycle have already largely cashed out.

During the spring, ahead of the public offering, Equinox increased its stake in SoulCycle, and its co-founders, Julie Rice and Elizabeth Cutler, each received a payout of nearly $90 million.

SoulCycle has set off something of a boomlet in so-called fitness boutiques, whose backers also happen to be some of their best customers. “We have no shortage of investor interest,” says Ed Kinnaly, chief executive of Flywheel Sports, a New York-based SoulCycle competitor that emphasises performance. Flywheel has received funding from the family of Lew Frankfort, Coach’s former chief executive, as well as from the private equity firm Catterton Partners. “A lot of private investors are also our consumers,” Kinnaly said. “We have a lot of financial industry folks, Wall Street or hedge fund executives, who are looking for a great workout in a short amount of time.”

Peloton Cycle, which sells $2,000 sleek stationary bikes for home use, counts the hedge fund Tiger Global Management, which has risen to prominence by backing startups, among its investors. (Peloton customers spend another $39 a month to have unlimited live classes streamed directly to their home bikes.) In July, another private equity firm took a stake in Barry’s Bootcamp, an intense cardio and strength-training program that claims it can burn 1,000 calories in one hour as its techniques “shock” the body. If the workout does not shock the body, the $34-per-session price just might. If the 1980s exercise gurus Jane Fonda and Richard Simmons were focused on bringing fitness to the masses, these high-end gyms and boutique fitness centers are mostly after the affluent with money to burn.

At $34 a session, three SoulCycle workouts a week will cost more than $5,000 a year. If one opts for the SuperSoul package, which lets customers reserve their favorite classes or instructors, each session costs a hefty $70. The factors driving the high-end fitness craze are similar to those that drive luxury car sales and luxury apartment listings: The wealthy are less sensitive to the economy’s ups and downs. Less sensitive, at least, than most members of traditional big-box gyms, which are considered more cyclical businesses. In a downturn, financially struggling consumers often drop their gym memberships - which is what happened during the latest recession, sending Bally Total Fitness, Crunch Fitness and even the more upscale David Barton Gym chain into bankruptcy. “We are right now targeting affluent users,” said John Foley, a former president of e-commerce at Barnes & Noble who founded Peloton Cycle in 2012.

“If we sold only to the top 5 per cent, we would have a $5 to $10 billion business.” Foley argues that cycling mania is in its early stages and will not go the way of other fitness crazes like Jazzercise, step aerobics or Tae Bo.

“All over the country, not just affluent New Yorkers, want to burn 700 calories in a workout and have a glow about themselves all day,” Foley said. “SoulCycle and its brand have tapped into the notion of exercise as food for your mind as well as your body. What’s happening in those cycling classes involves spirituality, psychotherapy and some self-help.”

Indeed, SoulCycle ambitions stretch beyond its 45-minute classes. Its prospectus states that it hopes to increase its number of locations, from the little more than three dozen studios it currently has to 250 in the United States alone. It also hopes to expand digitally to an “at-home” audience and to extend its brand by expanding its trendy workout apparel line. Perhaps that’s why one of its new board members is Millard S. Drexler, the chief executive of the J. Crew Group. Because SoulCycle is in a quiet period ahead of its IPO, no one was available to speak for this article.

New York Times