Brait’s Virgin Active has merged with Kauai parent Real Foods, while new and existing shareholders, including business tycoon Christo Wiese, are investing £88.4m (R1.8bn) as the fitness group expands into the nutrition business.
Virgin is 80%-owned by holding company Brait, along with Richard Branson’s Virgin Group, and has gyms in SA, the UK and Italy. Its gyms in all three countries lost members during the hard lockdowns at the onset of the Covid-19 pandemic and the business returned to full operations only in October 2021.
With consumers showing a renewed interest in health and fitness after the pandemic, Virgin on Friday, announced three different transactions.
Virgin has bought Real Foods, the parent of Kauai and Nü Foods, in exchange for R580m in Virgin shares and plans to open Kauai branches in the UK and Italy outside gyms.
Real Food owner and founder Dean Kowarski has been named CEO of the enlarged group. He replaces Mathew Bucknall who is retiring after 25 years at the helm. Kowarski, businessman Christo Wiese — the biggest shareholder in Brait — and Brait are also investing £88.4m (R1.8bn) in the Virgin business.
Titan Premier Investments, an investment vehicle belonging to Wiese, will inject £50m, giving it a 7.9% shareholding, while Brait and Virgin Group will inject £20.2m, with Brait’s stake in the gym expected to fall to 67.3%.
Wiese, who lost a large portion of his fortune when retailer Steinhoff’s share collapsed by more than 90% in the wake of the fraud in 2017, last month received a R7bn payout from a Steinhoff settlement with investors who were defrauded.
Of the new investment, only R950m is earmarked for debt in the SA business. Brait has a total of R3.9bn in debt. In 2020 it sold UK grocery group Iceland to cover older debt. Then in 2021 it raised R3bn in a rights issue to help it pay off debt.
However, the lion’s share of the new funding is to drive growth and Virgin Active’s new strategy, that combines the health-conscious food and gyms.
Kowarski told Business Day, the money would be used to grow the business and open Kauai branches in Italy and UK, and would not be used primarily to pay debt.
“The capital will support the growth of the business across the different countries. And it’s on the back of a new strategy,” he said.
Kowarski’s DK Consortium is investing £18.2m in the business, which he said shows his commitment and belief in Virgin’s strategy and growth prospects. He has a background in M&A, having worked in SA and abroad for KPMG, advising on deals, turnaround mandates and high-growth start-up opportunities before buying Kauai in 2015.
His business received no cash — only Virgin Active shares when it sold Real Foods to the group. Nearly half of Kauai’s 204 branches are located at Virgin Active gyms, and the businesses' success has been interlinked since 2005.
Kowarski said Virgin wants to open Kauai stores in Italy and the UK, targeting loyal gym members who will recognise the brand.
Virgin also wants to improve members’ “exercise experience”, he said. While home exercise routines and programmes proved popular at the height of the pandemic, the gyms can offer a variety of classes such as Pilates, yoga and boxing without consumers having to pay for each class.
Virgin wants to attract the best instructors “making sure that we’ve got the best exercise experience in the world” and will also invest in studios and better group exercise facilities, Kowarski said.
While online classes will be offered, Kowarski says these memberships have flattened and people are returning to gym as they wish to be part of a community.
Brian Joffe, the founder of investment holding company Long4Life that owns sports store Sportsmans Warehouse, made news in 2020 when he said gyms were “yesterday’s news”. This was as home exercise equipment sales soared during the Covid-19 pandemic.
However, Kowarski says data shows that Virgin membership in all its markets in February was higher than the February before the pandemic. Customers who terminated their membership during Covid-19 are returning and existing members are using the gym more.
Brait’s shares have fallen almost 56% since the beginning of 2020, leaving it with a current market value of R5.8bn.
Brait is expected to update the market on listing Premier Group in its own separate IPO later this year. Premier owns food brands including Blue Ribbon bread, Snowflake flour, Iwisa maize meal and Manhattan sweets.
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