Leisure

The leisure sector includes hotels, restaurants, holiday parks, travel companies, cinemas, gyms, bingo, gaming and pubs. Globally, leisure spend continues to increase; as with all consumer markets, the sector benefits from rising wealth. But European legislation banning smoking is having a significant impact on a number of multi-site leisure businesses, and some contend that the United Kingdom’s new gambling regulations have disadvantaged the industry. As with the retail sector, private equity firms are attracted by differentiated propositions, loyal customers, the quality of current locations and future roll-out potential.

One of the best-known private equity leisure investments is Gala Coral, which provides an excellent illustration of a ‘buy and build’ strategy. In 1997 John Kelly purchased 130 Gala bingo clubs from Bass with funding from PPM Ventures (now Silverfleet Capital). In the next three years, the new company added Ritz Bingo Clubs and Jarglen Group, and in 2000 CSFB acquired a majority stake, with Silverfleet retaining an equity holding. In the same year, the group acquired 27 Riva Bingo Clubs for £90 million and 26 Ladbroke Casinos for £235 million from the Hilton Group. In 2001 it added the Jamba Online business, and Silverfleet and CSFB sold the business for £1.24 billion to the private equity firms Candover and Cinven. In August 2005 Permira joined them, valuing the group at £1.9 billion, and in October Gala acquired Coral Eurobet for £2.18 billion, creating Gala Coral Group.

Private equity investors used a buy and build strategy to create Coral Eurobet. In 1998, the United Kingdom’s Monopolies and Mergers Commission concluded that Ladbrokes’ acquisition of Coral the previous year should be disallowed and in 1999 the Coral Group was sold to its management, backed by Morgan Grenfell Private Equity. In 1999, Coral Group acquired Eurobet, an internet betting business, creating Coral Eurobet. In 2002, the business was sold in a secondary buyout to Charterhouse for £860 million. Since the 2005 acquisition the management team’s strategy has been to grow the business organically and through acquisition. Today, the Gala Coral Group is the leading bingo operator in the United Kingdom, with over 150 clubs and over six million members, a leading casino operator with over 25 sites and the third largest operator of licensed betting shops. It has a significant multimedia offering including online bingo, betting and casinos. In 1997, the group, of which John Kelly is now non-executive Chairman, was valued at £236 million; it is now considered to have an enterprise value of well over £4.5 billion.

There has been significant M&A activity in the health and fitness market. Private equity has been attracted by the potential for consolidation and roll-out, although not always with the same success as in other areas of the leisure market. M&A transactions have included the 2001 acquisitions of Cannons by Nuffield Hospital and of David Lloyd by London & Regional, and Virgin Active’s acquisition of Holmes Place in 2006.

Private equity funds have demonstrated interest in specialist travel companies and site-based leisure facilities such as caravan parks. 3i is an investor in Shearings Holdings, formed through the merger of Wallace Arnold, which operates hotels and coaches. Shearings’ key asset is its marketing database of around three million customers who are predominantly over 50 years of age. The SAGA travel services business, now part of the CVC-backed group Acromas, has a similar approach.

In 2007 GI Partners acquired Park Resorts from AAC Capital for approximately £330 million. Employing a buy and build strategy, the management team bought twelve caravan parks from Bourne Leisure and combined them with GB Holiday Parks to create Park Resorts, which now has 25 parks along the coastline of the United Kingdom. AAC Capital (then ABN Amro) had acquired Park Resorts in 2004 for £165 million from Close Brothers Private Equity and combined it with GB Holiday, which they bought from RBS for £105 million.

A further example of private equity investment in the sector is Blackstone Group’s Center Parcs, acquired for $1.4 billion, which operates short break holidays across four ‘villages’ set within forest estates.

Theme parks and day visitor attractions have also attracted significant private equity interest. The world’s number two visitor attraction company (after Disney) is Blackstone and DIC’s Merlin Entertainments Group, which comprises Merlin, Legoland, Gardaland and Tussauds Group. It operates 51 attractions and four hotels across Europe, North America and Asia, drawing over 30 million visitors to operations such as Alton Towers, The London Eye, Legoland and Madame Tussauds.

In 2003 Advent International acquired Parques Reunidos, a Spanish leisure park operator. The opportunity lay in consolidation and improving operational performance. Before it was sold to Candover in 2006, the business had grown from 14 to 22 parks across countries ranging from Spain to Norway to Argentina, increasing its revenues from €82 million to €194 million.

Numerous pub and restaurant operators are or have been under private equity ownership. These include Spirit Group (previously backed by TPG, Blackstone, CVC and Merrill Lynch); Tragus (owned by Blackstone), which operates Café Rouge, Bella Italia, Ortega and Oriels; Paramount Restaurants (backed by Silverfleet Capital), which owns Chez Cherard, Café Uno, Livebait and Café Fish; and Orchid Pubs (controlled by GI Partners).