By Mark Kleinman, City Editor
Virgin Active is mulling a takeover bid for David Lloyd Leisure that would create a £2bn health and fitness empire, and entrench Sir Richard Branson as the industry's most important British stakeholder.
I have learnt that Virgin Active has been undertaking detailed work on the structure of a possible offer for David Lloyd, which has been put up for sale by its consortium of shareholders.
The Virgin-backed chain is now deliberating over whether to submit a formal offer for the tennis-based network of fitness clubs ahead of a new deadline, which is thought to have been set for next month.
If successfully completed, a deal would create a group of more than 200 venues in the UK, with many more in a host of overseas markets, including Belgium, Ireland and South Africa.
People close to the process said that Virgin Active did not participate in the initial round of bidding for David Lloyd earlier this month, and cautioned that it may yet decide not to make an offer at all.
David Lloyd's advisers at UBS, the investment bank, are said to be seeking a sale worth £900m, although some insiders suggested on Friday that a lower valuation was likely.
Virgin Active, which is chaired by the former Boots boss Richard Baker, would have little trouble financing a deal.
A controlling stake in the business was sold in 2011 to CVC Capital Partners, the buyout firm behind Formula One motor racing, in a deal thought to have valued the gyms chain at £900m.
According to unaudited results published last summer, Virgin Active recorded a profit of £127m in 2011, up 11% on the previous year.
The company is understood to have concluded that a takeover of David Lloyd, which made around £100m last year, would not raise significant competition concerns.
The health and fitness market remains reasonably fragmented, with other significant players including a diminished Fitness First, which now operates around 80 clubs following a financial restructuring that saw many sites sold or closed.
A number of other gym chains are also on the market, with several private equity firms looking at a combination of Pure Gym and the Gym Group at the value end of the sector.
Even if Virgin Active does decide to pursue an offer for David Lloyd, it will face stiff competition to secure a deal. Private equity firms including Blackstone and KSL Capital Partners, which owns the Belfry golf resort, are reported to have submitted offers.
David Lloyd is controlled by London & Regional, the vehicle of the property tycoons Ian and David Livingstone, and Caird Capital, a firm created by former HBOS bankers responsible for many of the bank's biggest corporate deals before it required a rescue in 2008.
Virgin declined to comment, while David Lloyd could not be reached for comment.
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