Is Virgin Active preparing to list on the JSE?

It seems gym group Virgin Active might be warming up for a JSE listing, about 15 years after the dramatic collapse of LeisureNet

S peculation out of the UK is that gym group Virgin Active might be flexing its muscles for a possible listing on the JSE.

This is a development that intrigues me for several reasons. I have always been fascinated by Virgin prime mover Sir Richard Branson, particularly the way he could cash in by foisting Mike Oldfield’s insufferably twiddly album Tubular Bells onto the record-buying public but still completely redeem his streetcred by also bankrolling such left-field musical delights as the band Gong and the abrasive Sex Pistols (whom I have to thank for my survival during my teenage years in Uitenhage).

Of course, older readers might also remember that Virgin Active bought the old Health & Racquet Club out of the crumpled heap that was the former market darling LeisureNet back in 2000.

For those who don’t remember; LeisureNet successfully expanded the Health & Racquet concept countrywide, but came horribly unstuck when the balance sheet and operational cash flows could no longer support contingent liabilities linked to an aggressive offshore expansion drive in Germany, the UK and Australia.

Still, LeisureNet’s offshore endeavours were initially so promising that the company was courted by a handful of international suitors, whose enthusiasm subsequently waned after they detected the strenuous development costs attached to the offshore footprint.

In fact it was during 2000 that Virgin Active — then a fledgling health and fitness operation — was first tipped as a serious contender to acquire LeisureNet’s Healthland International, which operated 22 clubs in Europe and Australia, in a reported £70m bid.

But Virgin Active held back from a formal bid and simply bided its time until it could buy the Heath & Racquet Club chain out of liquidation for R320m.

The rumoured listing of Virgin Active on the JSE may look strange for a company with headquarters in the UK. But the chances of such a development seem to have been increased markedly by the recent appointment of former Woolworths boss Simon Susman as Virgin Active chairman. Arguably the main motivating factor for a JSE listing is that the company’s biggest growth potential lies in SA, and possibly other African markets.

The last set of summarised results I could locate for Virgin Active covers the 12 months ended December 31 2013, but confirms that SA is still providing the growth muscle.

Membership in 2013 grew 3% to 1,3m, driving total revenue 5% to £653m (a 3% like-for-like sales increase and 2% from new club openings). Ebitda (earnings before interest, tax, depreciation and amortisation) shifted up 10% to £125m.

In terms of turnover growth the competitive UK market grew 1% and Europe and Asia Pacific by 6%.

SA was a sprightlier 14%, and a gain that was encouragingly carried through to the Ebitda level.

Reports from the UK suggest that Virgin Active is asking advisers to pitch for a role in the JSE listing that relates to an initial public offering, which could value the company at more than R25bn (£1,5bn being the figure bandied about in the UK press).

This is a sizeable listing for the JSE, and one hopes local retail investors get a look-in and possibly a preferential offer to those (ahem) dedicated Health & Racquet Club members who faithfully transferred to Virgin Active. To be honest, having members locked in as shareholders, especially in a venture that thrives on growing membership numbers, is probably not a bad idea.

At this point it’s unclear how much capital Virgin Active — controlled by CVC Capital Partners with Branson’s Virgin still as a meaningful shareholder — intends raising with the listing.

All in all it will be an interesting listing for local investors to peruse.

The mischievous side of me, of course, wonders whether Sekunjalo Investments — the original (and much miffed) BEE partner in LeisureNet — will again be lined up as an empowerment participant.