UK private equity house Cinven has confirmed its long-awaited offer for health and fitness group Fitness First, with the two groups agreeing the terms of a £204m public-to-private offer for the business.
Cinven has backed management led by CEO Michael Balfour in the formation of a new company, Moray, which has offered 175 pence per share for Fitness First. The offer represents a premium of approximately 46 per cent to the company’s share price of 119.5 pence per share on 19 November 2002, the day before the company announced that it was in talks over a possible offer. The company has net debt of £198.8m, giving the deal a total value of just over £400m.
Fitness First is one of the biggest operators of fitness clubs in the UK, with further centres in continental Europe, Asia and Australia. The group has grown considerably in recent years and now operates 311 clubs, 142 of which were in the UK, and has approximately 720,000 members. On 30 January 2003, Fitness First announced preliminary results for the year ended 31 October 2002, reporting turnover of £224.2m (2001: £133.1m) and pre-tax profits of £24.1m (2001: £20.6m).
Rumours of an offer for Fitness First emerged in October, when the company issued a profits warning, which it attributed to opening more new clubs in 2002 than originally planned and slower than forecast sign-up of new members. Fitness chains across the UK have suffered from a fall in membership numbers and a lack of interest shown in them by the public markets. In November 2001, Fitness First was trading above 430 pence per share. A year later the price was 133 pence.
Financing for the transaction has been arranged and fully underwritten by Bank of Scotland and Royal Bank of Scotland. Cinven has put in place debt facilities of £331m comprising £261m in acquisition financing, £50m of capital expenditure facilities and £20m of working capital facilities.
Cinven is being advised by UBS Warburg and Freshfields Bruckhaus Deringer. Fitness First’s directors have been advised by Investec and Dresdner Kleinwort Wasserstein.
Bridgepoint Capital is likely to be the next private equity house to take an interest in the UK fitness and leisure sector. It is currently in negotiations with Holmes Place over a take-private deal for the company.