Esporta outlines acquisition plan for Next Generation

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The bidding battle for the 14-strong racquets club chain Next Generation is set to heat up after its bigger rival Esporta raised a war chest through a £306m debt refinancing yesterday.

Esporta, a chain of 52 health clubs backed by the private-equity house Duke Street Capital, refinanced its senior debt facilities with Bank of Scotland. The deal released a further £120m of cash for acquisitions and seven planned club openings and enabled Duke Street to take out some of its investment.

Esporta's chief executive Neil Gillis insisted yesterday he would pay no more than £150m for Next Generation, resisting suggestions it could be worth a lot more. David Lloyd, the former tennis professional who set up Next Generation, is thought to want at least £200m for the business. It recently had its freehold property assets revalued at £225m by the London property firm Strutt and Parker.

Next Generation has invited first-round bids by 22 February after attracting interest from 40 bidders who requested an information memorandum on the business.

Esporta claims to be the only trade buyer in the running but faces strong competition from private-equity players such as Blackstone. It is unclear whether Whitbread would join the bidding as it reviews the strategy for its David Lloyd Leisure arm. Several property groups, including the Iranian tycoon Robert Tchenguiz, are known to be interested. Esporta is in discussions with Mr Tchenguiz and a number of other property groups about teaming up, though it maintains that it does not need a partner to make a bid.

Mr Gillis said he would not overpay for Next Generation, a relatively small chain, and added that David Lloyd Leisure, which is worth up to £550m, would be a "better fit" if it is put up for sale.

Esporta's advisers poured scorn on the mooted £200m-plus price tag yesterday, and pointed out that Next Generation only achieves annual earnings before interest, tax and amortisation (ebitda) of £15m.

Simon Tilley, at Close Brothers which advised Esporta on its debt restructuring, said the business had been split internally into an operating company and a property group to enable it to fund the Next Generation purchase. "Next Generation would be an extremely attractive acquisition," he said. He thought UBS, advisers to Next Generation, would want to push on with the sale. Mr Lloyd has said he hopes to have the process wrapped up by March.

Esporta's position was strengthened yesterday by buoyant profits. Like-for-like sales rose 3.6 per cent last year, propelling earnings up 10 per cent to £38.3m after an improvement in membership retention.