News & Analysis

Halabi mulls suing Duke Street over Esporta

French bank Société Générale’s failure to syndicate a £330 million loan backing Esporta pulled the plug on the property tycoon Simon Halabi’s acquisition vehicles. Halabi is considering suing Duke Street Capital, Esporta’s previous owner, and the prior management of the company.

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The credit crunch has hit the investment vehicles behind the buyout of leisure group Esporta, which Simon Halabi, a Syrian property tycoon, has placed into administration.

The 54 gyms under the Esporta brand are not in administration.

A source close to Halabi said: “He is seriously considering suing Duke Street Capital and the previous management.”

Halabi’s hand was forced over the receivership, according to a separate source familiar with the deal, by French bank SocGen, which had been unable to syndicate its £330 million ($655 million, €488 million) loan in the debt market turmoil.

The source said Halabi had been asked to put up £50 million “now or never”. As SocGen would not provide more debt, Halabi had decided not to place more equity in the company and therefore the vehicle had gone into administration. 

Halabi’s equity stake in the company was described by the person close to him as between £100 and £150 million.

Grant Thornton has been appointed joint administrator of Bell Leisure Investment No 1 and No 2 to help restructure the company.

Halabi hired Lazards to conduct an auction of the gym chain. He is also seeking a four-month delay to the settlement of a £30 million loan note provided by Duke Street Capital last November. Duke Street sold the company for £460 million.

The arrival of administrators is the culmination of an unsettled nine months. Former chief executive Neil Gillis and former finance director Michael Ball left unexpectedly just a few months after Halabi took control. Charlie Parker the former Clubhaus managing director, who had been lined up as chairman, also exited precipitously. Parker had carried out the due diligence on Esporta, according to the source close to Halabi.

Someone close to Duke Street Capital said: “It was a strong stable business operating in a growth market. There is no reason it could not have grown further but it has lost its focus since Halabi took over.”  The other bidders competing for the business don’t go into deals without doing due diligence and they were all willing to pay over £400 million for the business, he said.

Accountant PWC conducted due diligence on Esporta. Halabi had three months to do due diligence from November to January. Parker served on the board of Esporta during the takeover period, as did Harry Sihra, who still works for Halabi.