International Business Insight It is an early weekday morning in Mexico City and the main room in the Santa Fe district branch of Sports World is filled with office workers going through their paces on rows of spinning machines and treadmills. Inside the airy atmosphere and floor-to-ceiling windows, the scene is much like that in the many other gyms that have opened in Mexico during the past few years.
But Sports World is a rare case of a home-grown, medium-sized business in Mexico that appears to be succeeding in its quest to become big. Last month, the company listed on the Mexico stock exchange, selling 61 per cent of its shares to the public and raising 850m pesos ($68.7m) in the process. Significantly, and thanks to pension-fund rule changes for investments introduced towards the end of last year, two private pension funds, known as afores, took some of the initial public offering, as well as other institutional investors.
As Luis Téllez, president of the stock market, told the FT recently, the IPO “completes the financing cycle ... and the interesting thing was that it is a mid-sized company”.
But it was not always that way. Sports World, which has 14 branches and 25,000 clients, began life in 1989 as the Tarango Club in the south of the capital. It was a family business and there was only one branch.
But Héctor Troncoso, one of the owners, remembers that the club his father established was extremely profitable. “It was a really good business, and I knew very early on that we had to expand,” he says. The problem was that there was no credit. “The banks just did not want to know,” he recalls. “They were very scared, they didn’t even look at the numbers and they shut the door in our face.”
So he financed the first expansion phase with the help of family and friends. By 1996, and several branches later, the business had officially become Sports World.
Yet Mr Troncoso was nearing the end of his expansion model. “The bottom line was that there just weren’t any more friends and family to ask to join,” he says. The business had also grown in a haphazard manner, with each branch operating as an independent company with its own shareholders, rather than as the unified entity it proclaimed to be. As Mr Troncoso puts it: “On the inside it was a bit chaotic.”
So he called Nexxus Capital, Mexico’s largest private equity group. Nexxus shook the company up, centralising the management structure making the finances and share structure more coherent. In short, it made Sports World more “institutional”.
Between 2005 and this year, when the company listed, it had already almost tripled its number of branches, and went from $32m to a market capitalisation of $140m when it floated last month. Some analysts say it has the potential to double its number of branches in the next four years and see a similar rise in its market capitalisation.
