LGV bears brunt of Total Fitness pre-pack

PRIVATE equity investor Legal and General Ventures lost nearly £90m on its investment in North West gyms business Total Fitness.

The Handforth-based company was sold in October for £11.9m in a pre-pack administration to turnaround specialist Graham Hallworth and Barclays Ventures.

A report by joint administrators Tom Jack and Simon Allport of Ernst & Young in Manchester also reveals that unsecured creditors are set to lose £9.8m on the deal, meaning that total losses are nearly £100m.

Mr Hallworth’s team paid £11.9m for the business, which was significantly less that the £23m owed to Barclays and The Co-operative Bank as secured creditors, meaning that LGV’s £87m investment is now worthless.

LGV had backed an £80m management buy-out of the business in July 2004 led by former chief executive Robin Johnson and managing director John Peers.

They had bought the business, which traded from 21 sites in the North West and North Wales and three sites in Ireland, from Kwik Save founder Albert Gubay.

Mr Gubay had transferred ownership of the group’s properties to one of his own companies in the year prior to the sale. New leases were also agreed on the sites which included pre-determined fixed rent increases.

Following the sale in 2005, three new sites were opened, but the company struggled to achieve projected growth targets and breached its banking covenants in 2007, leading to an initial refinancing.

In the year to March 2008 the firm’s earnings before interest, tax, depreciation and amortisation (ebitda) peaked at £10m on sales of £58.7m, although its heavy interest payments led to it declaring a net post-tax loss of £6.6m in that year.

Sales increased for the year to March 2009 to £59.4m, but post-tax losses mounted to £9m sparking another round of restructuring in July 2009 which saw LGV write off around £60m in loan notes.

A further refinancing in February 2010 saw LGV write off a further £27m in loan notes in a bid to reduce the company’s interest payments, but the firm’s trading failed to improve and profits worsened due to a combination of higher rent and utilities costs coupled with falling subscriber revenues.

The management team called in Ernst & Young to undertake a review of the business in May 2010 order to try and find new funders or a buyer for the business.

Its report said that the offer received from Hallworth and Barclays Ventures was”the best available for the creditors of the companies”, whose assets had been independently valued at around £5m.

“In the absence of the transaction entered into it would not have been possible for the directors of the Irish group companies to secure continued working capital funding and therefore the viability of these operations could have been in doubt,” the report said.

Mr Jack said in a statement to TheBusinessDesk.com: “We were pleased to complete the sale of Total Fitness, which ensured the survival of a prominent North West business, safeguarding the jobs of all 746 employees and securing the continued operation of all 24 clubs for the group’s 182,000 members.”