FITNESS FIRST, the leisure group taken private by Cinven two years ago, is expected to be sold for up to £800 million, in a deal that would net the founders a second multimillion-pound windfall.
Mike Balfour, deputy chairman of the group, made £11 million from the original sale to Cinven, and stands to make considerably more this time around. There would also be large sums for other members of the management, led by Mike Metcalf, who became chief executive last August.
UBS, the investment bank, has been appointed to conduct a strategic review of the business that will allow Cinven to exit, and it is thought that a sale of the group is the most likely outcome.
Approaches are expected from several venture capital groups, including Forstmann Little & Co, the American buyout firm that last month bought the 24 Hour Fitness chain for £877 million, and MidOcean Partners, which recently bought LA Fitness. A sale is likely to take about four months to complete, although a flotation has not been ruled out.
So-called secondary buyouts – an asset sale by one private equity group to another – now make up almost half, by value, of all deals done in the sector, according to research on the buyout market conducted for Barclays Private Equity and Deloitte. Secondary deals were worth £2.8 billion of the £6.4 billion transactions recorded in the first half of this year.
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The four largest private equity exits so far this year have all been secondary buyouts, including the sale of Tussauds Group to Dubai International Capital for £800 million in March.
Cinven’s decision to exit Fitness First so rapidly is also a sign of the increasing desire by private equity firms to get returns from their investments more quickly. CVC Capital Partners said last week that it was selling the car repair chain Kwik-Fit to the rival private equity firm PAI, after owning it for less than three years.
Cinven paid just over £400 million, including almost £200 million of debt, to take control of Fitness First, but there was concern at the time that the private equity group was getting a strong business cheaply, on the back of a single profit warning.
One investor, Deutsche Asset Management, refused to sell its 10 per cent stake to Cinven because it felt there was no need for the business to be taken off the stock market at the offer price. Deutsche is understood to be supportive of Cinven’s decision to seek an exit.