Sports Direct To Shed Pounds With LA Fitness

By Mark Kleinman, City Editor

It has changed the face - and economics - of high street sports goods retailing.

Now Sports Direct International is preparing to take on the health and wellbeing industry by snapping up dozens of gyms from LA Fitness.

Sky News has learnt that Sports Direct's ebullient founder, Mike Ashley, has sanctioned a move to acquire the leases on approximately 30 LA Fitness sites which were put up for sale as part of a restructuring of the troubled gym operator's finances.

He is said to have agreed to offer a parent company guarantee to LA Fitness landlords in order to fend off interest from rivals, and a deal is understood to be imminent, although one insider said on Wednesday that it could still fall apart.

If completed, it would mark the fulfilment of a long-held ambition of Mr Ashley, the owner of Newcastle United FC, to break into the lucrative health and fitness sector.

It is unclear how he plans to brand the sites that he takes on, but LA Fitness's continuing operation at just under 50 other locations means Mr Ashley is likely to choose to operate them.

Sources said that Sports Direct was attracted to the complementary nature of gym operations and sports goods retailing given its ownership of brands such as Dunlop, Everlast and Slazenger. It owns LA Gear, a Californian fashion and fitness brand.

If the LA Fitness deal is successful, Mr Ashley is likely to pursue an aggressive expansion of the business through other acquisitions, they added.

A transaction could be announced within days, although it will not be material from the perspective of Sports Direct's finances and the company may opt not to make a public statement.

LA Fitness, which had been owned by Mid Ocean Partners, a private equity firm, since 2005, has endured a difficult period amid the rapid growth of lower-priced competitors.

Earlier this year, two of these rivals, The Gym Group and Pure Gym, agreed a merger that created a nationwide chain with more than 100 sites.

Fitness First, another mid-market player, agreed a financial overhaul with its lenders last year, while LA Fitness undertook a series of company voluntary agreements (CVAs) with landlords, allowing it to revise the terms of its club leases.

Martin Long, LA Fitness's chief executive, said when approval for the restructuring was obtained in March: "We are pleased that the CVAs have been approved with strong support from landlords.

"We are now able to focus on the long-term future of LA fitness as we create a leaner, more operationally efficient business with the financial strength and operational flexibility to continue investing in facilities, equipment and technology across our retained portfolio of clubs to enhance the experience for our members."

The deal included a debt-for-equity swap which resulted in partial ownership of LA Fitness passing to lenders including the state-backed Royal Bank of Scotland.

A Sports Direct spokeswoman declined to comment.

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