HgCapital, the European mid-market buyout firm, has emerged as a possible bidder for Fitness First, the struggling UK fitness chain that put itself up for sale yesterday.
The firm is thought to be planning a £150m bid for the company, which has instructed Investec and Dresdner Kleinwort Wasserstein to begin a formal process to investigate options “which could include an offer for Fitness First”. The fitness chain added that no indicative offer has yet been received for the company.
Like many of its listed peers, Fitness First has suffered from a lack of appetite among public market investors. In November 2001, the company had a share price in excess of 430 pence. Following yesterday’s announcement, Fitness First shares were up 12 per cent at 133 pence, less than a third of their value last year. The 133 pence share price gives the company a market capitalisation of £152m, slightly higher than a likely offer from HgCapital, according to UK newspaper The Guardian.
Fitness first operates 311 clubs across 14 countries of which 134 are based in the UK. At the end of October, Fitness First had 720,000 members, an increase of 280,000 on 2001 levels. The company plans to open a further 50 clubs in the coming financial year, although this figures has been revised downwards from an original target of 80. However, the company issued a profits warning last month and said that growth rates were declining, meaning that breakeven for new clubs had slowed to six to nine months compared with three to six months previously.
Fitness First is the fifth publicly-listed fitness chain to become the subject of buyout speculation in the past 18 months. Consolidation in the sector is being led almost exclusively by private equity firms, which over the past six months have been particularly active in the sector.
Most recently speculation centred around a possible bid for UK operator Holmes Place from Bridgepoint Capital, which already owns a 55 per cent stake in Virgin Active. Earlier this year, Duke Street Capital acquired Esporta in a £140m deal, subsequently merging the business with Invicta Leisure, which it acquired from Electra Partners.
Other firms reported to be interested in the business include PPM Ventures and Cinven. HgCapital was declined to comment on the report.