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Graphite Capital backs GBP22m MBO of The Third Space

UK mid-market private equity specialist Graphite Capital has backed a GBP22m management buy-out of London health and fitness clubs The Third Space Group, whose membership has grown to nearly 4

UK mid-market private equity specialist Graphite Capital has backed a GBP22m management buy-out of London health and fitness clubs The Third Space Group, whose membership has grown to nearly 4,300 since its founding in June 2001 by Longshot, under chief executive Joel Cadbury.

The group’s former finance director Eric Dunmore is leading the buy-out and will become chief executive of The Third Space. The existing operational management remain with the business and the group is recruiting a new part-time executive chairman.

‘Conceptually we brought together health and fitness under one roof – taking a holistic approach to helping our members take care of themselves,’ Dunmore says. ‘We aim to provide quality, convenience and value for money to our ‘time poor’ urban members.’

The facilities include a medical centre offering orthodox and complementary medicine and therapies, 30 different fitness classes, a 20-metre ozone swimming pool, an hypoxic chamber to simulate altitude training, a climbing wall, 16 personal trainers and state of the art entertainment software with a DJ to encourage members to work out.

Following the buyout, the group plans to grow the business by increasing capacity on the existing site near Piccadilly Circus in London, developing new clubs under The Third Space brand and exploring acquisition opportunities initially in London and then in other urban areas targeting time-pressured individuals.

In addition, a five-year office and retail upgrade development programme of the Quadrant area in Regent Street near the existing club will lead to substantially more office workers in the area.

The UK health club market is growing, with consumer spending on health and fitness clubs increasing at 5.4 per cent a year since 2001, but membership penetration in the UK, at 11 per cent, still lags the 15-16 per cent level found in the US.

‘Prospects are favourable for the health and fitness sector in the premium segment,’ says Graphite senior partner Andy Gray. ‘The Third Space is a very attractive proposition and has excellent opportunities for expansion. We have considerable experience in growing leisure and consumer businesses to multi-site operations.’

Adds Dunmore: ‘We are very excited about the prospect of growing the business further with Graphite’s financial support and expertise in leisure sector roll-outs.’

Cadbury will become a non-executive director of The Third Space while Ollie Vigors, who was responsible for the team running the club, will provide ongoing, project-related support. Both are reinvesting in the business.

Mike Innes, Gray and Mike Tilbury managed the transaction for Graphite, which has acquired a majority stake in the business. Lloyds Bank provided debt facilities including acquisition finance and working capital. Simon Barnes and Shiv Sivarajah managed the transaction for the bank.

Graphite Capital is a specialist provider of private equity finance to mid-market companies in the UK. Graphite focuses on management buy-outs and buy-ins, expansion capital, replacement capital and turnaround opportunities. It invests in transactions with an enterprise value of GBP20m to GBP200m.

Graphite manages more than GBP1.2bn through three private funds and the publicly quoted Graphite Enterprise Trust, and raised GBP475m in May for its latest fund, Graphite Capital Partners VII.

The previous fund, Graphite Capital Partners VI, has invested in 15 companies including Park Holidays UK, a holiday home and caravan park operator; Micheldever Tyre Services, a wholesaler of car and motorcycle tyres; NES, a global technical recruitment business; sk:n, a provider of non-surgical cosmetic procedures; and outsourced staffing group Aktrion.

In the past three years Graphite has completed 20 exits and refinancings with a total value of GBP1.1bn, including Maplin Electronics, Wagamama, Ridgmont Care Homes and Jane Norman.

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