THE countdown to the £1 billion flotation of one of Britain’s biggest gym chains will begin within days when Virgin Active and Holmes Place complete their merger, The Times has learnt.
UBS has been instructed by Sir Richard Branson’s Virgin Group to refinance the newly merged operator of Virgin Active and the UK operations of Holmes Place, with an announcement expected within ten days. The merged entity would have combined sales of about £600 million.
The completion of the merger, which will create one of Britain’s biggest gym chains with 350,000 members and 73 clubs, will trigger the countdown to a flotation of the new group, with a listing expected within 12 to 18 months.
The listing would help Sir Richard, one of Britain’s best known entrepreneurs, towards his goal of having five or six quoted companies around the world by 2010-11. At present, he has two — the Virgin Mobile business, which is now part of the New-York listed NTL, and Virgin Blue, the Australian airline. A flotation of his US mobile phone business, Virgin Mobile USA, is expected within the next few years.
A flotation of the enlarged business would also mark a turnaround in the gym and fitness sector in Britain. Fierce competition, high costs and high attrition rates have seen a flurry of players taken private in recent years.
Advertisement
Though Holmes Place has struggled in the UK, the smaller Virgin Active is one of the most profitable gym chains with a pre-tax profit last year of £33 million.
Under the terms of the deal, Bridgepoint Capital and Permira, the private equity groups with a controlling stake in Holmes Place, are expected to take between 12 and 15 per cent in the enlarged company.
Though analysts welcomed the consolidation, some questioned the logic of the planned float. Wayne Brown, a leisure analyst at Altium Securities, said: “It has been a rough few years for the fitness sector in a saturated market. In this climate I am not sure we are looking at a growth story. I would be interested to hear the case for investment.”
However, people with knowledge of the tie-up said a consolidated player with the strong Virgin brand would be an attractive investment prospect further down the line. Though the UK market is tough, opportunities in less mature markets such as Asia and Australia are significant, they said.
They also argue that, with the public-to-private deals having mainly taken place in 2001-02 many of the gym chains are now better positioned to forge ahead.
Advertisement
Virgin Active, which already operates in Spain, Italy and South Africa, is thought to be planning to move into Asia.
Bridgepoint and Permira acquired Holmes place for £210 million in 2003. Other private equity deals in the sector have included the £835 million acquisition last year of Fitness First by BC Parters from its rival, Cinven.