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Les Mills
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Les Mills
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UNITING THE WORLD OF FITNESS
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News

Virgin Active seeking cash injection to ride out the pandemic

Virgin Active has become the latest big-box operator to signal its intention to raise cash to buffer it from the impact of the pandemic.

The operator, which has 42 clubs in the UK, is 80 per cent owned by Brait – the investment group of former billionaire, Christo Wiese.

Brait bought its stake from Richard Branson's Virgin Group and investor CVC in April 2015, leaving Branson with 20 per cent and valuing the business at £1.3bn.

Virgin Active filed its 2019 accounts on 24 December 2020, revealing how it has been coping with the pandemic so far.

In spite of mitigating actions taken to reduce the impact of the pandemic on the business – which included senior staff taking a 20 per cent pay cut during closures – the company was forced to take an additional loan of £25m in June 2020, which was matched by a £20m capital contribution from shareholders and a £5m deferral of licence fees.

The directors reported that all interest covenants up to 2021 were waived by lenders and that the company arranged a new liquidity covenant for the period from June 2020 to December 2021.

The accounts show the Virgin Active’s balance sheet is under pressure. Borrowings leapt between 2018 and 2019, increasing interest payments from £1.18m in 2018 to £13.61m in 2019 and driving the business from a £4.67m profit in 2018 to a loss of £1.18m in 2019.

The company is now understood to be looking to raise around £50m in cash, according to industry insiders, but it’s thought this will be done through the sale of equity, rather than from loan notes, to avoid gearing the business any further.

In the financial statement accompanying its 2019 accounts, Virgin Active said it aims to be able to continue to trade with the support of its ultimate backer – Virgin Active Investment Holdings – which has indicated it will stand behind the business, however, the directors say they accept that although this is the current position, this reliance on the financial support of the holding company must be seen as representing a “material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern.”

In spite of this warning note, it’s thought unlikely Wiese, Branson or the company’s banks would see any harm come to the business and that the current owners are likely to hold their nerve unless challenges escalate and lead to a fire sale.

If Brait ultimately has to sell its stake, then Virgin Active could be snapped up by one of the many private equity houses eyeing the sector for a deal.

Brait was thought to have been considering selling a slice of Virgin Active in 2019, with Morgan Stanley rumoured to be casting around for buyers, however, the pandemic has put a halt to these plans.

Virgin Active had 243 health clubs globally at the end of 2019, with more than half in southern Africa and others in Italy, Australia, UK, Singapore and Thailand.

The company has one of the most colourful backgrounds of any fitness operator, having – over the years – bought Holmes Place (2006) and Esporta (2011) as well as the bankrupt Health and Racquet Club chain (2003) and also having sold clubs to both Nuffield Health (2016) and David Lloyd Leisure (2017).

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Virgin Active has become the latest big-box operator to signal its intention to raise cash to buffer it from the impact of the pandemic.
PTS,HAF,FIT,IND
2020/THUMB346900_205783_581089.jpg
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Virgin Active seeking cash injection to ride out the pandemic

Virgin Active has become the latest big-box operator to signal its intention to raise cash to buffer it from the impact of the pandemic.

The operator, which has 42 clubs in the UK, is 80 per cent owned by Brait – the investment group of former billionaire, Christo Wiese.

Brait bought its stake from Richard Branson's Virgin Group and investor CVC in April 2015, leaving Branson with 20 per cent and valuing the business at £1.3bn.

Virgin Active filed its 2019 accounts on 24 December 2020, revealing how it has been coping with the pandemic so far.

In spite of mitigating actions taken to reduce the impact of the pandemic on the business – which included senior staff taking a 20 per cent pay cut during closures – the company was forced to take an additional loan of £25m in June 2020, which was matched by a £20m capital contribution from shareholders and a £5m deferral of licence fees.

The directors reported that all interest covenants up to 2021 were waived by lenders and that the company arranged a new liquidity covenant for the period from June 2020 to December 2021.

The accounts show the Virgin Active’s balance sheet is under pressure. Borrowings leapt between 2018 and 2019, increasing interest payments from £1.18m in 2018 to £13.61m in 2019 and driving the business from a £4.67m profit in 2018 to a loss of £1.18m in 2019.

The company is now understood to be looking to raise around £50m in cash, according to industry insiders, but it’s thought this will be done through the sale of equity, rather than from loan notes, to avoid gearing the business any further.

In the financial statement accompanying its 2019 accounts, Virgin Active said it aims to be able to continue to trade with the support of its ultimate backer – Virgin Active Investment Holdings – which has indicated it will stand behind the business, however, the directors say they accept that although this is the current position, this reliance on the financial support of the holding company must be seen as representing a “material uncertainty that may cast significant doubt on the company’s ability to continue as a going concern.”

In spite of this warning note, it’s thought unlikely Wiese, Branson or the company’s banks would see any harm come to the business and that the current owners are likely to hold their nerve unless challenges escalate and lead to a fire sale.

If Brait ultimately has to sell its stake, then Virgin Active could be snapped up by one of the many private equity houses eyeing the sector for a deal.

Brait was thought to have been considering selling a slice of Virgin Active in 2019, with Morgan Stanley rumoured to be casting around for buyers, however, the pandemic has put a halt to these plans.

Virgin Active had 243 health clubs globally at the end of 2019, with more than half in southern Africa and others in Italy, Australia, UK, Singapore and Thailand.

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Sign up here to get HCM's weekly ezine and every issue of HCM magazine free on digital.
Virgin Active has become the latest big-box operator to signal its intention to raise cash to buffer it from the impact of the pandemic.
PTS,HAF,FIT,IND
2020/THUMB346900_205783_581089.jpg

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Les Mills
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