LA Fitness to accept £140m offer amid tougher trading

LA Fitness, the gym chain close to agreeing a £140m private equity takeover, warned yesterday that trading conditions for the health club sector were tough.

LA Fitness, the gym chain close to agreeing a £140m private equity takeover, warned yesterday that trading conditions for the health club sector were tough.

Fred Turok, the founder of LA Fitness, is likely to pocket as much as £16m from the deal with MidOcean Partners, the US-based private equity vehicle that said yesterday it was in "advanced talks" with the company over a 220p-a-share cash offer. He and other members of the management will stay on as part of the takeover and Mr Turok is planning to reinvest a substantial chunk of his shareholding back into the business.

The 220p-a-share offer values the group at about £90m, but including its debt, it has an enterprise value of about £141m.

Analysts had hoped that LA Fitness might fetch as much as 250p a share. But Peter Jacobs, its chairman, said 220p was "a fair and reasonable price in the light of current trading conditions and the outlook for the rest of the financial year". He added: "If you look at the multiple being offered to earnings, then we have confidence that the company is not being sold on the cheap."

Although in the six months to the end of January the company delivered a 14 per cent increase in pre-tax profits to £4.2m, Mr Turok said trading had deteriorated in the past few months.

"We started the financial year in good health, but by October we began seeing a higher churn in members. Retention rates slipped from around 69 per cent to 66 per cent, so we drove up sales volumes and put up prices. But we found the actual number of people coming through the door to ask about membership has dropped and we haven't been able to change that," he said.

He said the rest of the industry was suffering similarly difficult trading conditions.

Publicly quoted companies such as Holmes Place, Cannons, Esporta and Fitness First have gone into private hands over the past few years amid a glut of capacity in the sector. Mr Turok, who until last year had remained adamant that LA Fitness would remain a public company, said the day LA Fitness delisted would be one "tinged with sadness".