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South Africa's Brait to pay $1 billion for control of Branson co-owned Virgin Active

Sir Richard Branson, founder and president of Britain's Virgin Group, arrives for the Victoria's Secret Fashion Show in New York, November 19, 2009. REUTERS/Carlo Allegri

By Tiisetso Motsoeneng JOHANNESBURG (Reuters) - South African investment house Brait SE is to pay 682 million pounds ($1 billion) for a controlling stake in gym group Virgin Active, Brait said on Thursday, seeking to tap the growing health-conscious middle classes particularly in Africa and Asia. The fitness chain, jointly owned by the Virgin Group of entrepreneur Richard Branson and buyout firm CVC Capital Partners, has 267 gyms across nine countries including in South Africa, home to the largest number of Virgin Active clubs, Thailand and Britain. Brait said it will buy an 80 percent stake in Virgin Active for 682 million pounds, valuing the gym chain at 1.3 billion pounds, including debt. The Virgin Group will retain a 20 percent stake. Without debt, the transaction - the biggest in Africa so far this year, according to Thomson Reuters data - values Virgin Active at 870 million pounds. "It doesn't look particularly cheap; it looks like Brait has paid quite a premium for this asset," Nic Norman-Smith, a fund manager at Lentus Asset Management. "On the upside, they have that Virgin brand, which is relatively powerful. I would imagine they'd be looking at further monetising it with more outlets." Shares in Brait jumped 3.3 percent to 89.60 rand by 1440 GMT, a level last seen in December and on track for their biggest daily percentage gain since that month. Virgin Active has over 1.3 million members worldwide and made about 630 million pounds in revenue in 2014, according to a statement on its website. Brait said the deal would allow it to expand Virgin Active further into Africa and Asia, where the middle class is increasingly concerned about its health as diseases linked to lifestyle such as type 2 diabetes become more common. South Africa ranks third in a list of the world's most obese nations behind the United States and Mexico. But many in South Africa are aiming to keep healthy. "I go to the gym at least three times a week, I like to keep fit, keep the weight and diseases away and the good thing is the gym is very close to where I work," said Archie Ayekpa, a 28-year civil servant and Virgin Active customer in Pretoria. Brait, which is also listed in Luxembourg , said it would fund the deal with cash on hand. With an internal rate of return - a measure of the size of a return and how long it took to earn it - in the high 20s, CVC Capital would double its money on the deal, a source familiar with the matter said. CVC Capital bought a 51 percent stake in Virgin Active about three years ago and the source said it had invested 25 million pounds in new clubs since then. Law firm A&O advised Virgin Active and its management while Slaughters acted for Virgin Group and CVC. Linklaters acted for Brait. Investment banks Standard Bank and Rand Merchant Bank, a unit of FirstRand also advised on the deal. Drawn by the prospect of outsize returns, private equity firms are increasingly flocking to win customers on the African continent of 1 billion people. African-focused funds run by firms such as Carlyle Group LP and Amethis are behind the expansion in African private equity deals. These totalled $8.1 billion in 2014, the second highest on record in Africa, according to African Private Equity Association. ($1 = 0.6707 pounds) (Additional reporting by Freya Berry in London, Joe Brock and Lynette Ndabambi; Editing by James Macharia and David Stamp)