For nearly two decades, investment group Brait pursued bold private equity-style transactions — from consumer brands group Premier to UK fashion chain New Look. But after years of deleveraging and value erosion, prospects now hinge mainly on a single dominant asset: fitness chain Virgin Active.
Overall, Brait — which has retail tycoon Christo Wiese as a major and enduring shareholder, with about 13% — has been reshaped into a leaner vehicle under global asset management principles. Its fee model — 1.5% of NAV and 15% of realisation profits — has sparked scrutiny, especially as Virgin Active comprises a chunky 62% of Brait’s R16.4bn in assets.
Some of the Virgin Active story, of course, harks back to the old LeisureNet Group, which owned the Health & Racquet Club chain of gyms in South Africa and abroad.
LeisureNet collapsed 25 years ago under a heap of lease liabilities and was rescued — apparently at the behest of Nelson Mandela — by Richard Branson’s Virgin Group. About 10 years ago, a flush Brait, which had just handsomely exited its investment in fashion retailer Pepkor, snapped up an 80% stake in Virgin Active for £853m — more than R15bn at the time.
The Covid lockdowns in 2020 brutally curtailed cash flow at Virgin Active as pandemic restrictions played havoc with the operating model. It has been an arduous slog — with capital-raising exercises and key management changes — to shift Virgin Active back into a profit-flexing posture.
Brait’s current R10.2bn valuation of Virgin Active is based on £120m in maintainable earnings before interest, tax, depreciation and amortisation (ebitda) and a multiple of nine.
The applicable ebitda has been openly questioned by investors, who argue that international peers (most notably franchise-based Planet Fitness) operate on slightly different business models. Brait CEO Peter Hayward-Butt makes the point, though, that the Virgin Active ebitda multiple has been stable for several years.
But despite 13% revenue growth and margin gains, questions persist about the fitness chain’s sustainability, capital intensity and exit viability.
At this juncture Virgin Active is being billed as a holistic wellness company, rather than a traditional fitness and gym chain. CEO Dean Kowarski notes that the traditional fitness industry is worth about £1-trillion a year, but the global wellness sector is worth considerably more at £4-trillion. He reckons this could grow to £7-trillion by 2027.
Virgin Active operates mainly across four territories. South Africa accounts for 35% of revenue, Italy 27%, the UK 24% and Australia and Asia Pacific 14%. Virgin Active also has a toehold in the Middle East, but via a capital-light model that attracts management fees, rather than physical ownership of the gym.
Kowarski says the broader wellness thrust globally is being helped by consumers — especially younger ones — prioritising their health. There is an increasing rejection of toxic behaviour, helped by the policies of governments and assurance companies.
Kowarski says that two years in, Virgin Active’s strategy of evolving from a gym business to a social wellness hub — which has entailed technology upgrades and club refurbishments — has already made an impact. In the first four months of 2025 (to end-April) there was an 8% increase in yields on top of an 11% growth in revenue.
Virgin Active CFO Mark Field was bold enough to put a medium-term ebitda target of £180m-£200m in the recent investor presentation — adding that investors could frame this target as “two to three years out”.
To understand the new vision behind Virgin Active, it is probably prudent to peruse the new flagship at Cape Town’s V&A Waterfront
To understand the new vision behind Virgin Active, it is probably prudent to peruse the new flagship at Cape Town’s V&A Waterfront. This wellness precinct is a R200m bet on premium positioning, with a R3.7m monthly lease making it one of the sector’s priciest commitments. It signals a shift towards yield-accretive locations layered with personal training, recovery services, Kauai cafés and partner programmes.
Rather than chasing volume, the strategy focuses on high engagement per member through premium pricing and bundled experiences. This club, part of a R1.4bn capex plan, is the clearest test of whether Virgin Active’s capital-intensive model can support its R10.2bn valuation.
Virgin Active’s exit from its RED-branded gyms reflects a strategic shift in focus. Designed for younger, budget-conscious users, RED struggled post-pandemic amid digital and boutique competition, failing to deliver stable margins or retention.
Brait’s 2025 results show RED asset writedowns in low-income, high-churn areas, prompting capital reallocation to higher-yield segments. This is less retrenchment than repositioning — towards wellness experiences, deeper engagement and premium subscriptions.
While the shift strengthens Virgin Active’s valuation case, it also narrows its market. Without RED, the business is more exposed if premium wellness demand weakens.
For now, however, Virgin Active’s rebound appears strong. Group ebitda rose 45% year on year to a £121m run rate by April 2025. Yet Brait bases its R10.2bn valuation on a slightly lower maintainable ebitda of £120m — indicating a mix of confidence and prudence in assessing long-term earnings quality.
This distinction is important. Maintainable ebitda are meant to normalise performance across cycles and geographies, smoothing out temporary surges or setbacks.
The deeper concern is below the ebitda line. Free cash flow remains constrained by heavy capex demands and a £386.6m debt burden. In a capital-intensive business where continual investment is required to maintain competitiveness, the gap between ebitda and true cash generation amplifies financial risk and operational exposure.
Field does stress that the group is now generating positive cash flow that can fund growth and degear the balance sheet, adding that new investments have been tagged with a minimum internal rate of return of 20%.
From a valuation perspective, this creates three structural challenges.
First, effective leverage is understated — since debt is largely serviced from ebitda, not free cash. Second, enterprise value tilts towards creditors, making equity value more vulnerable to shifts in retention, pricing or macro assumptions. Third, and most critically, any operational or external shock — consumer softness, foreign exchange swings, inflation — can disproportionately erode equity returns.
For Brait, the investment thesis hinges not just on growth but on converting that growth into durable, equity-accretive returns. Until this cash conversion dynamic strengthens, the R10.2bn valuation remains more aspirational than assured.
After years of underinvestment — initially from margin pressure, then Covid lockdowns — Virgin Active is undergoing a major capex catch-up. In the financial year to end-March 2025, Brait allocated more than R1.4bn to refurbish clubs and build select new ones across its global footprint.
This spend is essential. The brand’s premium positioning depends on modern, high-quality infrastructure — especially in such markets as Southern Africa and Asia Pacific. Capex is critical to reigniting member engagement, improving yields and sustaining premium pricing.
But the scale of reinvestment raises concerns about capital efficiency. In mature markets, returns may be limited unless supported by pricing power or added revenue from wellness services. With £386.6m in debt and uneven cash flow, funding remains a challenge.
The tension is clear: Virgin Active must restore brand equity without destabilising its balance sheet. For Brait, the risk isn’t spending — it’s whether that spend translates into sustainable earnings or becomes a capital trap.
David Eborall, portfolio manager at SaltLight Capital, pointed out at the investment presentation that Virgin Active’s capex guidance consumed half of ebitda and then there was still the interest bill to service.
Field broke down the guidance: “If you take £120m in ebitda and reduce it by £45m in maintenance, and then reduce by £45m in interest [paid], you are looking at £35m of cash left over for reinvestment.”
Given the cash balance of £77m, “the plan presented can be funded by existing resources”, Field said.
“As a business we have the ability to manage that reinvestment according to our cash. We can accelerate it if we raise further funding or decelerate it as we feel.”
Looking out to the medium term, Field maintained that at the lower ebitda range of £180m, Virgin Active would be paying cash of £16m. “So, you would have £164m in post-tax profit, which interest would reduce by around £37m and capex by £45m. At that point you will have £82m for reinvestment, which is probably more than we need.”
Titanium Capital founder Charles Boles concedes that 18 to 24 months ago, Virgin Active’s run rate ebitda of £120m looked “pie in the sky. It has come a long way, and management has done a good job.”
But Boles remains wary, pointing out that Virgin Active — as well as international peers — are still struggling to get membership numbers back to pre-Covid levels. He questions just how long gym groups can push membership rates.
“Gym operators have moved to profitability by pushing rates — it’s much more yield management than membership growth. You think of private school groups. They also thought they could keep increasing fees. But they could not.”
THE ECOSYSTEM STRATEGY
Virgin Active’s strategy to position itself as more than just a gym operator hinges on what Brait refers to as a “wellness ecosystem”. At the heart of this model are integrated partnerships — Discovery Vitality and Kauai are the most prominent — that are designed to create reinforcing loops of engagement, loyalty and monetisation across the member journey.
Vitality, South Africa’s leading behavioural health platform, remains a cornerstone channel for member acquisition and retention. With more than 60% of Virgin Active’s Southern African members linked to Vitality, the partnership provides both volume and embedded stickiness.
But its value is not just in scale — it lies in aligning incentives. Vitality rewards frequent gym visits and wellness behaviour, which directly drives club utilisation and perceived value. This alignment transforms Virgin Active from a discretionary expense into a health-care-linked lifestyle utility for many members.
Kauai, the health food brand partially owned by Virgin Active, deepens this integration. Many clubs have on-site Kauai cafés, blurring the lines between fitness, nutrition and social space. This not only enhances the premium member experience but also creates new revenue lines within the same physical footprint. It’s part of a broader effort to monetise dwell time — converting visits into spending and spending into loyalty.
The ecosystem thesis is elegant, but its execution is complex. It relies on data interoperability, cross-brand alignment and high service consistency.
In the short term, it also requires capital to retrofit clubs and train staff. Still, if successfully scaled, it has the potential to shift Virgin Active from a transactional membership model to a high-engagement, high-margin wellness platform — one that justifies not only premium pricing but the ambitious R10.2bn valuation underpinning Brait’s investment case.
Still, Virgin Active’s recovery faces a fragmented fitness landscape shaped by digital acceleration, boutique studios and changing consumer expectations. The pandemic didn’t just close gyms — it redefined convenience, personalisation and value.
Some may remember that during the lockdown, dealmaking doyen Brian Joffe made the famous pronouncement — as the then owner of sports goods retailer Sportmans Warehouse — that “gyms were yesterday’s news”. For a time, it seemed Joffe had a point. Virgin Active might not be a historical relic, but it certainly still faces challenges from “gymless” offerings.
Digital-first platforms such as Peloton and Apple Fitness+ offer low-cost, accessible, data-rich alternatives, appealing to time-strapped, tech-savvy users. The disruption is cultural: flexibility and seamless digital integration are now baseline expectations.
Boutique studios — offering yoga, high-intensity interval training, spinning and Pilates — thrive on specialisation and community. They’ve captured the premium segment Virgin Active is targeting in its repositioning.
Virgin Active’s response is hybrid: reformer Pilates zones, AI-driven programming, enhanced app experiences and padel courts. But scale now requires reinvention. Being “everything to everyone” no longer works. It can add operational complexity.
This fragmentation offers both risk and opportunity. Virgin Active could unify diverse formats under one trusted brand, but doing so requires agility, capital and flawless execution, which is not guaranteed after years of underinvestment.
GLOBAL GYM; LOCAL HEADWINDS
Virgin Active operates across four core territories: Southern Africa, the UK, Italy and Asia Pacific — each contributing differently to the group’s consolidated recovery. While the overarching strategy centres on premiumisation and wellness integration, the granular performance across markets reveals an uneven trajectory that complicates the group’s valuation.
Southern Africa, with 131 clubs, remains the backbone of the group and its largest ebitda contributor. As at December 31 2024, it reported 631,000 members (up 5% year on year) and £188m in revenue, a 16% increase compared with the prior period. With Discovery Vitality as a channel partner and relatively limited competitive disruption, the region remains Virgin Active’s most stable and strategically aligned geography. It also benefits from being a market-leading operator with strong local brand equity.
In Italy, Virgin Active operates 40 clubs with 188,000 members, maintaining flat club numbers but delivering 5% membership growth and a 17% revenue uplift to £153m. As a market leader, the brand retains strategic positioning, but margin pressures from energy costs and economic stagnation persist, raising questions about capital efficiency in further investment.
The UK portfolio has been pared down to 31 clubs, with 134,000 members and £130m in revenue, up 11% on the prior year. Though revenue growth is notable, the UK remains a highly saturated and margin-sensitive market. Virgin Active is repositioning as a premium London operator, but the scale-back underscores the difficulties of competing against boutique specialists and digital disrupters in broader UK regions.
Asia Pacific — with 22 clubs, 56,000 members and £81m in revenue (a 20% year-on-year increase) — offers both promise and unpredictability. The brand has a premium position in select urban centres such as Singapore and Bangkok, but exposure to geopolitical uncertainty and currency risk, particularly in Hong Kong, tempers expansion confidence.
Group-wide, Virgin Active reported 224 clubs, just over 1-million members, and £576m in revenue, all up about 5%-13% year on year.
Yet these consolidated gains mask regional imbalances. For Brait, the strategic implication is clear: while certain territories are delivering reliable cash flows, others remain in transition or are underperforming.
WHAT COMES NEXT?
Brait stands at a critical juncture with Virgin Active, where its next move — listing, selling or holding — will define its post-restructuring future.
An IPO could bring liquidity and valuation upside, especially if markets favour wellness assets. But it would expose Virgin Active to public scrutiny, where cash flow clarity and balance sheet strength matter. With £386.6m in debt and ongoing reinvestment, weak free cash flow could undermine the listing case. Timing is key: too early risks undervaluation, too late erodes optionality.
A trade sale offers simplicity and flexibility but comes with buyer constraints. High capex, modest free cash flow and the need for operational continuity limit the appeal to only those with strong synergies or sector conviction — possibly at valuations below Brait’s R10.2bn target.
Holding is the patient option, aligned with the management fee model. It bets on improving per-member economics, deleveraging and stronger cash conversion. But that would require time, capital and investor tolerance — scarce in a post-deleveraging world.
Ultimately, Brait’s exit choice is both strategic and philosophical. Is Virgin Active a compounding asset worth nurturing, or is the window for monetisation closing? That decision will signal whether Brait can translate potential into realised value.
But investors should not lose sight of the fact that with only modest growth in total club numbers (224 across all markets as at December 2024), Virgin Active is not leveraging expansion volume to offset fixed costs. Rather, it is seeking operational leverage through margin expansion within existing assets, a more demanding and less scalable growth path.
This model may deliver quality earnings in favourable markets, but it constrains geographic expansion and makes the business more vulnerable to wage inflation, energy costs and capex overruns.
For parent company Brait, this raises a central question: can Virgin Active deliver equity-scalable returns from a business model that does not scale in traditional ways? If not, the valuation rests more on asset quality than systemic growth, limiting upside and magnifying risk.
Ultimately, Brait’s R10.2bn valuation of Virgin may be not just defensible but appropriate. In this light, the figure becomes a discounted expression of future cash-generating capacity, reflecting not current financials but post-reinvestment earnings power. The assumption is that the heavy lifting has largely been done, and value is now set to crystallise.
Charles Boles, founder of Titanium Capital, suggests the latest performance figures from Virgin Active have given Brait more time to consider its options.
“The options get easier when you have a score — £120m in run rate ebitda — on the board. I would think Brait is open to all options: sell Virgin Active or list it on an international bourse. Or sell enough of its stake in Premier to expunge Virgin Active’s debt, and then let Brait effectively become a listing vehicle for Virgin Active.
“A listing, with a medium-term ebitda target of £180m in mind, seems most probable. The market is hungry for growth story listings.”
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