Fitness First, an investment of the €4.4 billion third Cinven fund, was acquired in a
£404 million (€580 million) public to private transaction in June 2003.
The investment case for Fitness First focused on a number of core initiatives:
- controlling the rapid expansion undertaken immediately prior to the acquisition;
- the realignment of the company’s new club opening programme with a strong weighting towards building international revenues and profits from high growth, high return regions such as Asia and Australia;
- the introduction of new management to bring operational and retail disciplines to the UK portfolio and the implementation, more broadly, of additional management and financial best practice;
- the turnaround of loss making jurisdictions;
- investment in the refurbishment of the acquired portfolio of clubs and improved member services; and
- optimisation of Fitness First’s balance sheet through sale and leasebacks of the company’s freehold assets.
As a result of these initiatives, Fitness First is expecting to achieve EBITDA of about £95 million in the year to October 2005, which represents an increase of 85% over the comparable figure in 2002. Furthermore, as a consequence of highly targeted geographic diversification, the company now generates approximately two thirds of its profits from non-UK operations (40% at the time of acquisition).
Today, Fitness First is the world’s largest fitness company. It has over 1.1 million members served by 424 clubs (March 2003: 346) in 15 countries. The Company now enjoys market leadership in 10 of the 15 countries in which it operates.
The divestment of Fitness First has enabled Cinven to deliver very healthy returns on its original equity investment to its investors and the third Cinven fund as a whole to return €3 billion to investors through a combination of exits and refinancings.
The sale of Fitness First follows the successful sale of NCP in August 2005, which generated returns of about three times, and the IPO of Foseco plc in April 2005, an investment made in September 2001 by the second Cinven fund, which generated returns of 3.7 times (including the fund’s retained stake in Foseco).
UBS Investment Bank acted as financial adviser to Cinven and Fitness First.
Yagnish Chotai, Partner of Cinven, said today:
"After a period of rapid UK domestic and international growth, Fitness First found itself in a difficult position as a publicly listed company: market sentiment had moved against the sector as a whole and, following a profits warning, the business lacked access to debt and equity capital markets to exploit the commercial opportunities available to it.
"Under Cinven’s ownership, a highly experienced and professional senior management team was provided with the financial resources both to optimise the performance of the club portfolio as it stood in 2003 and to focus on additional but selective international expansion into the attractive Asian and Australian markets. The initiatives undertaken by Cinven and the management team have created the truly global market leader that has generated strong profits growth and significant returns for Cinven’s investors."
John Lovering, Chairman of Fitness First, added:
"Fitness First’s business has been transformed under Cinven’s ownership. The core focus of the new management team has been on injecting operational disciplines and returns based capital investment into a business that had expanded rapidly as a listed company. Cinven has proved a highly supportive backer of the business both financially and through their significant experience in the leisure sector."