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Viva Leisure shares on watch after acquisition news

Kenneth Hall

Viva Leisure Ltd (ASX: VVA) shares will be worth watching when they return from a trading halt after announcing a $13.5 million acquisition today.

What did Viva Leisure announce today?

The Aussie fitness group has announced it will acquire 13 FitnFast Health Clubs located in the ACT, New South Wales and Victoria.

The $13.5 million purchase will bring 21,500 members to the group’s existing customer base. The 15,600 square metres of leased club space will help move towards its target of 2.00 members per square metres.

The group’s expansion plans are well underway with all 13 locations currently profitable. There are 4 additional locations not being acquired after not satisfying the group’s acquisition guidelines.

The transaction’s expected addition to earnings per share (EPS) is 20% accretive. Viva Leisure’s expected net cost and revenue synergies are $1.2 million per year.

FY19 revenue for the acquired clubs was $17.9 million with earnings before interest, tax, depreciation and amortisation (EBITDA) of $3.6 million. Viva Leisure shares will be on watch once the company emerges from its trading halt this week following the news.

The group is forecasting FY19 pro forma EBITDA of $4.7 million post-synergies. That represents 32.9% growth for the FitnFast health clubs with an implied historical FY19 EBITDA multiple of 3.79 times.

Why are Viva shares in a trading halt?

Viva Leisure shares remain in a trading halt after announcing a $20.0 million fully underwritten placement to new and existing institutional shareholders.

The group may also use part of its debt facility with Commonwealth Bank of Australia Ltd (ASX: CBA) for the purchase.

Subject to the assignment of property leases, Viva Leisure expects to complete the acquisition by 31 March 2020.

Viva Leisure shares have been rocketing higher in 2019 and are up 166.67% since the start of January.

At $2.88 per share, Viva Leisure is trading at a price-to-earnings multiple of 55.9 times and is just shy of its $3.04 per share 52-week high.

The post Viva Leisure shares on watch after acquisition news appeared first on Motley Fool Australia.

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Motley Fool contributor Kenneth Hall has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Viva Leisure Ltd. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019