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Unfit for purpose

THE CHIEF financial officer of Fitness First was one of the main casualties from a brutal boardroom clearout by the health club operator’s owner.

BC Partners, the private equity owner of Fitness First, axed almost the entire gym’s management team in a desperate attempt to protect its multi-million pound investment in the debt-burdened company.

David Stalker, chief executive of the Fitness Industry Association, said: “Fitness First is a competitive business that has been hurt by the ongoing worldwide recession. It has endeavored to react to the money-conscious market by delivering its budget brand Klick Fitness but has been unable to rectify its debt maturity problem.

“We acknowledge the business decision by BC Partners to recruit a new leadership team and as long-standing members of the FIA, look forward to working with the new Fitness First board to promote physical activity.”

The boardroom cull, which includes the departure of the chief executive Colin Waggett, finance director Duncan Tatton-Brown and UK managing director John Gamble, was announced as the buy-out group prepares to enter into negotiations with the fitness chain’s creditors over the refinancing of its £550m debt burden amid concerns that the company could breach its bank covenants.

BC Partners, which acquired the company in 2005 for £835m, is owed about £490m by Fitness First in the form of shareholder loan notes. According to The Times, among the refinancing options being considered are an extended debt facility on new terms, accompanied by a fresh injection from BC, or a debt for equity swap.

A source close to the situation told The Times: “This is a good business with a debt maturity problem. It is solvent but its financial position meant there was a need for new leadership.”

The decision to axe the board follows an aborted £1bn listing on the Singapore stock exchange after the move was derailed because of difficult market conditions.

Chris Stone, an executive with experience turning around private equity-backed business Northgate Information Solutions, has been parachuted in by BC Partners to replace Waggett as CEO. Jan Kengelbach of BC Partners, another turnaround specialist, has been named as interim CFO, while Donald Featherstone of Alix Partners will work as chief restructuring officer.

The new CFO will have to slash the fitness chain’s spending, which became bloated as the company pursued an ambitious growth strategy that suffered a severe knockback as it, and many of its peers, were hit by the recession and the emergence of a raft of low-cost rivals offering gym memberships for about half that of Fitness First.

BC Partners told The Times: “Fitness First, like so many companies, faces a series of pressures as a result of the challenging economic environment and conditions in the debt markets that have made refinancing an extremely difficult proposition.

“In these circumstances, the company needs to maintain a clear focus on efficiency and the board concluded after long discussions that a change in management was required to ensure the business can move forward in the current environment.”

Tatton-Brown’s departure is a rare blot on his extensive career. He served as group finance director of Kingfisher from 2004 to 2008, finance director of B&Q from 2001 until its acquisition by Kingfisher and also served as chief financial officer and group finance director of Virgin Entertainment Group and CFO of Virgin Group.

 

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