Holmes joins peers on PE radar

Confirmation that Holmes Place is exploring buyout possibilities could be the signal for the latest in a series of private equity investments in the health club sector.

Holmes Place, the listed upmarket health club operator, has given permission to the firms chief executive and finance director to prepare a management buyout of the company. 

News of a possible buyout was announced yesterday and speculation has increased over who might enter the race to acquire the firm, which is currently valued at around £150m. 

Hawkpoint Partners, financial advisors to Holmes Place, declined to comment on the possibility of a private equity-backed offer for the company, although newspaper reports have today suggested that UK private equity house Cinven may be one of a number of firms mulling an offer.

Health club chains have seen their valuations tumble in the last year as the market has become more crowded. News of a possible deal for Holmes Place saw the company’s share price increase by nearly 20 per cent to its current level of 148p. However, this is still almost half the firm’s value in September 2001, when the firm was trading above 280p.

Due to its difficulties, the health club sector has proved to be a popular arena for private equity firms. The most recent example of interest in the sector is Esporta, currently the subject of a pending offer from Duke Street Capital, which has offered 80p per share (£133m) for the struggling fitness chain.

In late February, Bridgepoint Capital acquired a 55 per cent stake in Virgin Active, Virgin’s UK health and fitness chain, in a deal valuing the company at £110m. Bridgepoint is a former investor in Holmes Place, having made a E48m growth capital investment in the company back in 1996.

Last May saw Royal Bank Private Equity back a £260m cash offer by Health Club Investments Group (HCIG) to take Cannons Group private.

This week, Esporta has re-iterated that Duke Street’s 80p per share offer for the company fails to reflect the company’s value. However, the absence of a rival offer would suggest that there is little interest in the company above its current price. The firm also announced a reduction in the number of clubs it planned to open in 2002, cutting the original target of twelve to 14 down to five.

Nick Irens, chairman of Duke Street Capital Leisure Investments (DSCLI), believes the offer for Esporta reflects fair value given the current state of the health care sector. “We believe that DSCLI is offering an attractive price for a business that still has a wide range of problems to solve.”

Duke Street has until the middle of July to decide whether to make an improved offer to the 80p offer rejected by the Esporta board last month.