Holmes Place backs £205m takeover by Cannons

Holmes Place yesterday prepared to bow to a £205m takeover offer from its privately owned rival Cannons in a move that will create the UK's biggest health and fitness chain.

The decision by Holmes Place's board to back Cannons offer comes two months after Allan Fisher, the chief executive, began exploring a management buyout. Mr Fisher, who founded the group, stands to make about £21m from his stake in the business, while Lawrence Alkin, his co-founder and a non-executive director, will receive £32m.

Terms of the 200p a share cash offer have yet to be finalised but Cannon's venture capital backer, Royal Bank Private Equity, is expected to provide the financing with help from PPM Ventures, the Prudential's private equity arm, City sources said.

"The merger presents a very exciting potential to exploit our brand and marketing position," Mr Fisher said. The deal is subject to due diligence and could be completed in six weeks.

Mr Fisher said that he and Lee Ginsberg, the finance director, would play "leading" roles in the new enlarged business, dismissing suggestions that at 59 he could think about retiring. "I realised a long time ago that the best opportunities lie in the future," Mr Fisher said. "I founded the company, I started it ... and I enjoy it."

Analysts said the offer, which topped bids from Cinven and Bridgepoint Capital, rival private-equity houses, represented a good exit point for shareholders given that Holmes Place shares fell to 107.5p in June. It should also bolster the flagging health and fitness sector, which has fallen out of favour with the stock market in recent months, they added.

Holmes Place is just the latest fitness club operator to delist. It follows Esporta, taken private in July by another venture capitalist, Duke Street Private Equity, and Cannons, which delisted last year in £360m management buyout backed by Royal Bank Private Equity.

Greg Feehely, an analyst at Old Mutual Securities, said that "more than anything else, [Cannon's] price should focus investors on the value health and fitness operators [Fitness First and LA Fitness] which have lower risk, higher return models, yet currently attract lower [earnings] multiples."

The enlarged Holmes Place/Cannons will comprise 127 clubs, including a handful of sites operated for local government authorities and clubs in the Netherlands, Spain, Portugal, Switzerland, Austria and Germany. Harm Tegelaars, Cannon's chief executive and founder, is thought likely to run the new group, although the companies declined to comment further. The Holmes Place brand is expected to be kept.

The group reported flat pre-tax profits for the six months to 30 June of £6.7m on sales up by 28 per cent to £73.1m. Underlying sales at its UK clubs in the half-year were flat, reflecting increased competition, although Europe continued to show strong growth with underlying sales up 13 per cent, it added.