Private equity-backed gym chains LA Fitness and Total Fitness have reportedly partnered to offer about £720m (US$1.4bn) for rival operator Esporta, owned by London-based private equity firm Duke Street Capital.
Other contenders for the Berkshire-based gym and racquet club include the Qatar Investment Authority and Istithmar, while property group London & Regional (L&R) is also believed to be mulling an offer after earlier talks to acquire only Esporta’s property assets collapsed. The auction is being run by Citigroup.
Esporta’s property portfolio accounts for some £300m of its £720m enterprise value and the real estate assets are likely to make it a particularly attractive target for L&R, which paid £197.5m (US$370m) to buy up-market health club chain Next Generations Clubs in May this year.
As well as its operational business, much of the buyout interest in Next Generation focused on its substantial portfolio of 15 freehold premises, two development sites and its lease on the plush Chelsea Harbour Club.
Duke Street’s Esporta had itself been tipped as a possible bidder for Next Generations. A merger of Next Generation and Esporta could see L&R split the combined entity into two new businesses, a combined property company and a merged operating leisure company.
Earlier this year, big buyout firms Apax Partners and Blackstone Group were also understood to be in the running to acquire Esporta.
Duke Street took Esporta private in a £144m transaction in July 2002 before merging the business with Invecta Leisure. Since then, it has carried out two refinancings of Esporta, most recently with a £306.2m debt package provided by Bank of Scotland in February this year.
New York and London-based MidOcean Partners acquired LA Fitness in July 2005 for £150m, then Legal & General Ventures bought it for £80m in July 2004.
Private equity has taken a particular interest in the UK health club sector, with other major players being Holmes Place, owned by Bridgepoint and Permira, and Fitness First, owned by Cinven.
In September this year, the UK business of Holmes Place was sold to Virgin Active, although Bridgepoint and Permira maintain a minority stake of between 12% and 15%.
Virgin Active was a Bridgepoint portfolio company until it was sold back to Virgin Group for £134.5m in October 2005.