CVC bulks up with Virgin Active deal

CVC, no stranger to partnering with entrepreneurs after investing in F1 with Bernie Ecclestone, has acquired a majority stake in a gym chain owned by Richard Branson’s Virgin Group.

Buyout firm CVC Capital Partners has joined a slew of buyout firms to have invested in the gym and health club sector, paying about £450 million in equity to acquire a controlling stake in Virgin Active from Richard Branson’s Virgin Group. Virgin Group will retain a 49 percent holding in the company as part of the deal.

The deal values Virgin Active at about £880 million, and means buyout firms Permira and Bridgepoint have now fully exited the business. The pair, together with management, held a combined minority stake of 24 percent in Virgin Active following its acquisition of their portfolio company Holmes Place in 2006 by Virgin Active.

Law firm Gibson, Dunn and Crutcher advised Virgin on the deal, which is expected to complete in the fourth quarter.

CVC funded the deal solely using equity, and has reportedly yet to decide on whether to refinance the investment using debt at a later stage. CVC was unavailable for comment at press time. The enterprise value of the deal is just under seven times the company’s earnings before interest, tax, depreciation and amortisation, according to press reports.

The gym chain is seeking to increase its portfolio and develop internationally, according to a CVC statement. In July this year, Virgin Active acquired UK chain Esporta in a £78 million deal which added 53 clubs to its portfolio. As part of the CVC deal, Virgin Active will acquire a further four health clubs currently owned by Virgin Group in Australia. The quartet of clubs represents the company’s first foray into the Asia-Pacific region.

Virigin Active currently operates 254 clubs worldwide, and has more than 1.1 million members.

Health clubs have been a popular target for private equity firms in recent years.

BC Partners acquired Fitness First in 2005 for €1.2 billion from peer Cinven, and still owns the business, although there has been intense speculation BC is looking to float the business on the Singapore exchange. 

US buyout group MidOcean Partners bought LA Fitness in 2005 for £150 million, and remains its owner. MidOcean tried to buy rival chain Esporta from its private equity owner Duke Street Capital a year later, but lost out to property tycoon Simon Halabi.

Private equity group Patron Capital Partners is another firm to have dabbled in the sector, acquiring five-a-side football company Powerleague in 2009 for £80 million.

Bridges Ventures has invested over a number of funding rounds in low-cost UK gym chain The Gym, beginning with a £1 million investment in 2008 and continuing through further follow-on investments, the most recent of which was last year. The chain now has 13 sites across the UK, with a further three planned. Bridges has reportedly invested more than £17 million in the company.