Virgin Active agreed to be bought by the investment company owned by South African billionaire Christo Wiese for £682 million (R12 billion), prompting the British health club chain to cancel plans for a share sale.
Wiese’s Brait would take an 80 percent stake in Virgin Active, valuing the gym chain at £1.3bn, Brait said in a statement yesterday.
British entrepreneur Richard Branson’s Virgin Group will retain a 20 percent stake, while London-based private equity firm CVC Capital Partners will sell its entire shareholding.
“Brait has been tracking Virgin since 2011, so we were able to move quickly on this opportunity,” Brait’s South Africa chief executive John Gnodde said. Virgin Active was “very profitable and extremely cash generative”, he said.
Brait has been seeking targets for a R26.4bn windfall it received from the 2014 sale of its stake in African retailer Pepkor as investors pressured the company to spend the cash.
The Virgin Active deal represented less than 40 percent of the Pepkor funds, and Brait would seek further acquisitions in the South African and European food and consumer goods markets, Gnodde said.
Other Brait investments include UK-based food retailer Iceland.
Brait shares gained 4.31 percent to R90.45 by the close in Johannesburg, the biggest jump since October 31 and a record high. The stock has gained 15 percent this year, valuing the company at R47bn.
Cancelled
Virgin Active had appointed five banks to handle an initial public offering (IPO) of the company in Johannesburg by the end of June, people with knowledge of the matter said in February. The IPO plans were cancelled on Wednesday night after the Brait deal had been agreed to, Gnodde said.
The IPO “was ditched. It’s not going to happen,” he said.
Brait had an option to raise its stake above 80 percent although it had no immediate plans to do so, Gnodde said.
Founded in the UK in 1999, Virgin Active has 267 clubs in nine countries with more than 1.3 million members, according to its website. It has in excess of 110 outlets in South Africa, more than in any other country, from where it generates about 60 percent of profit.
Sales were about £630 million in 2014, according to the Brait statement.
Lower-cost gyms
The deal would help the company expand its network of health clubs in the Asia-Pacific region beyond Singapore and Thailand, as well as in existing markets including the UK, Gnodde said.
Brait would “keep it very high end”, while also seeking to open more lower-cost gyms under the Red brand.
“While the transaction is testament to the huge amount the business has already achieved, we believe that its future is more exciting,” Branson, the billionaire and founder of Virgin Group, said in one of the statements.
Wiese, South Africa’s fourth-richest man with a fortune of about $6.9bn (R83.3bn), owns about 35 percent of Brait.
Steinhoff International Holdings agreed to buy Pepkor for R62.8bn on November 25. Wiese remains a minor shareholder in the enlarged business. - Bloomberg
TIMELINE
April 16, 2015: Brait agrees to play £682m (R12.2bn) to acquire an 80 percent stake in British health club chain Virgin Active, which valued the company at £853m (R15.2 billion).
February, 2015: Virgin Active appointed five banks, Standard Bank, Bank of America Merrill Lynch, Goldman Sachs, Morgan Stanley and UBS, to handle an initial public offering of the company in Johannesburg by the end of June. The UK press put the value of the chain at about £1.5bn (R26.7bn).
2014: Virgin Active opened its first club in Bangkok, Thailand.
2013: Virgin Active opened its first club in Singapore.
2008: Virgin Active opened its first Australian club in Sydney.
2004: Virgin Active expanded its operations to Italy.
October, 2000: Virgin Active bought the assets of the Health and Racquet
Club chain after its parent company, Leisurenet was placed in liquidation for R319.6m.
1999: Richard Branson founded Virgin Active in the UK in the town of Preston in Lancashire.
Source: Business Report