ENTREPRENEUR Duncan Bannatyne has agreed a £92m deal that will help clear his company's loans with a collapsed bank.
The Bannatyne Group has announced the agreement with M&G Investments for the sale and leaseback of the ground leases of 39 Bannatyne’s Health Clubs.
The deal is aimed at freeing The Bannatyne Group from millions of pounds of bank debt and supporting its future development and profits.
It will allow the group to clear its loans with the failed Anglo Irish Bank.
In 2006, Dragons' Den star Mr Bannatyne borrowed £180m from the Anglo Irish Bank to buy 24 fitness clubs from the Hilton Group. The bank was nationalised by the Irish government in 2009, and last year, liquidators KPMG were called in to recover its debts.
The entrepreneur has been repaying the £120m outstanding at a rate of £10m a year.
The deal with M&G Investment, the principles of which were outlined in the Darlington-based tycoon’s most recent book, involves the sale of land and buildings and the creation of new long-term ground lease agreements with the new landlord. The company will retain long-term control of the buildings via very long and secure leasehold interests.
Mr Bannatyne, the chairman of The Bannatyne Group, said: “This deal has been reached with one of the most successful investment businesses in the world. M&G can see the long-term value of our business and has agreed to be our landlord over a very long lease term.
"Our premium business is successful, sustainable and profitable and we believe it is an ideal tenant to provide M&G’s investors with reliable returns.”
Unlike many market rented sale and leaseback investments, this deal is a quasi-ground lease arrangement where the initial rent is set at a lower percentage of market rental value. This is important for an institutional investor such as M&G because a deal structured in this way minimises the risk of the rent becoming unaffordable for the tenant.
All the sites are leased to Bannatyne Fitness Limited, which is part of The Bannatyne Group and is the UK’s largest independently-owned health club operator, for 125 years on a full repairing and insuring basis with contracted annual reviews linked to inflation. The portfolio comprises 26 freehold and 13 long leasehold properties.
Nigel Armstrong, the chief executive of the Bannatyne Group, said: “The transaction enables the business to be virtually debt free and will greatly benefit the liquidity of the business, at the same time allowing us to continue to fully control the operation and management of all the health clubs.
"Coupled with the ongoing profits from the business, which have climbed this year, the business has emerged from the economic storm stronger than ever. Innovative thinking and judicious use of business assets give us the future resources to continue to provide customers with fantastic products and service which enhance their lifestyle.”
Ben Jones of M&G Investments said: “This is another high quality deal that delivers exactly the sort of investment returns our many pension fund clients need. What makes this especially interesting is that it is an attractive and secure way to generate exposure to the leisure sector and provide very long term secure and index-linked cash flows.
"It is also notable for it being a bank replacement finance deal – more of the deals we do at M&G are attractive alternatives to bank finance.”
M&G Investments is advised by M&G Real Estate, which sourced this asset.
Kris McPhail of M&G Real Estate said: “This is a significant transaction in the key operating assets of an established and successful business. We have substantial funds available for inflation-linked investments and we expect to see more of these structured, low-geared rent deals done because it is an attractive way for companies with significant operational real estate to refinance.”
M&G Real Estate was advised on the deal by CBRE.
Patrick Grant, director of CBRE’s specialist markets team, said: “We are delighted to have worked with M&G Real Estate and Bannatyne Fitness to source and execute this transaction. The deal combined our capital markets platform with detailed knowledge and understanding of operational backed real estate.”
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