Why Brait’s valuation of Virgin Active makes little sense

Detailed summary

It values a German premium gym business it is buying on a lower multiple even though it is growing significantly faster.

Here’s a conundrum. Brait, which owns 61.9% of Virgin Active, places a significantly higher valuation multiple on the global ‘wellness’ business – which is growing earnings before interest, tax, depreciation and amortisation (Ebitda) at 6.5% – than a premium operator in Germany it is acquiring, which will grow Ebitda at 27% this year.

It values Virgin Active on a multiple of nine times embedded value (EV) to Ebitda, while it will pay €135 million for Holmes Place Germany (HPG), which equates to 6.3 times EV to Ebitda.

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It defends this as an “accretive acquisition multiple” and says this is due to:

Brait uses a peer group of seven listed global gym operators to determine the average EV/Ebitda multiple they trade at.

These are Lifetime Group (US), SmartFit (Brazil), Basic-Fit (The Netherlands), Leejam (Saudi Arabia), The Gym Group (UK), Sats (Norway) and Planet Fitness (US, no relation to the South African operator).

Only two of these (the latter-mentioned) trade at an EV/Ebitda multiple of above nine times.

According to Brait’s annual numbers, and measured on a compound annual growth rate (CAGR) basis, the average revenue growth between FY25 and FY27 for these operators is 12%, while for Ebitda, CAGR over the period averaged 14%.

Brait says its “primary valuation model utilised for valuing the unlisted portfolio of investments held by BML [Brait Mauritius Limited, a wholly owned subsidiary and the primary investment company of Brait plc] is the maintainable earnings multiple model”.

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