South Africa's Brait buys 80% stake in Virgin Active for £682m

South African retail billionaire Christo Wiese is expanding into the booming global fitness market by snapping up almost 80 per cent of Virgin Active health clubs for £682m through his investment company Brait SE.

Brait, which is majority owned by Mr Wiese and is listed in Johannesburg and on the MTF market in Luxembourg, is buying 51 per cent of Virgin Active owned by private equity group CVC Capital Partners and 29 per cent of the company owned by Sir Richard Branson's Virgin Group.

The Virgin Group will retain about 20 per cent of the company which is becoming increasingly Africa and Asia focused, with the rest being owned by Virgin Active's management, many of whom have been in place since the company was founded in 1997.

Brait said the deal gave Virgin Active, which has 267 clubs in nine countries across four continents with 1.3m gym members, an enterprise value of £1.3bn and an equity value of £870m.

This means CVC, which bought its Virgin Active stake in 2011 when the company was valued at £900m, has more than doubled its investment, according to people familiar with the matter.

Brait's swoop on Virgin Active continues a recent trend in the sales of private equity assets. Many sellers are using "dual-track" processes to simultaneously prepare for an IPO and to invite bids, including other buyout firms, to get the best price. It has meant that private equity firms' plans to exit investments can often change at the last minute.

Earlier this year, KKR snapped up the UK's thetrainline.com shortly before it would have been listed by its owner, Exponent.

Brait is financing the acquisition from its cash reserves - which were bolstered when it sold its stake in retailer Pepkor, founded by Mr Wiese in 1965, for $2.4bn last year.

CVC had been on the cusp of listing the company on the equity markets next month, including preparing an intention to float. By selling to Brait, "an opportunity which arose late in the day", according to Paul Woolf, Virgin Active's chief executive, it will be able to sell all of its stake at once compared with an initial public offering.

The deal also values Virgin Active at 10.5 times its earnings before interest, tax, depreciation and amortisation last year.

John Gnodde, chief executive of Brait South Africa, said his firm had been interested in the company - for "many years".

"Virgin Active's successful track record, high cash generation and exciting growth prospects in both emerging and developed markets make this an attractive opportunity for Brait and its shareholders," he said.

The first Virgin Active health club opened in Preston, northern England, in 1999. The company said that in the 10 years to 2014, which included the acquisitions of Esporta clubs in the UK and Spain and Holmes Place clubs in the UK, Virgin Active grew its revenue at a compound annual growth rate of 22 per cent and its underlying ebitda grew at a compound annual growth rate of 20 per cent on a constant currency basis.

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Virgin Active says it operates four times the number of clubs of the nearest rival in South Africa, and in the UK and Italy it claims to be the number one health club operator by revenue.

Sir Richard said the deal "is testament to the huge amount the business has already achieved". He described Brait as a "long-term investor with a strong track record in growing businesses". Management will also continue to invest in the company.

Brait said it wanted to be "an active partner in addition to an investor", according Mr Woolf, who added that the transaction "will enable us to accelerate our proven strategy of continuous improvement in our member proposition to deliver organic growth, and of opening clubs both in existing and new territories".

It has opened eight to 10 new clubs a year over the past three years and Mr Woolf said the company wants to accelerate this growth rate to 12 to 15 a year over the next three years.

Mr Woolf said Virgin Active's two other priorities were developing innovative workouts and harnessing technology to enable members to optimise their training programmes.

The acquisition is subject to approval by the South African and Namibian competition authorities.

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