Horizontal integration in action - Virgin grabs Esporta

A great example of horizontal integration and external growth on the news wires this morning. Virgin Active (which is majority owned by Branson) has agreed to pay £77.6 million in deal to buy 55 Esporta gyms - a move that will nearly double Virgin Active’s size in the UK. The scale of the takeover means that it will need to be cleared by the Competition Commission, but no signs as yet that the competition authorities will block the deal.

This is a good takeover for students to look at. Some of them may be familiar with the UK health club market and the Virgin Active brand in particular. A good starting point would be for students to consider the strategic rationale and direction behind the takeover. Hopefully concepts such as economies of scale and market share / market leadership would feature in their discussions. Virgin Active recently passed the milestone of having 1 million members in its club portfolio, although it did not open any new clubs in 2010, suggesting that it has been able to achieve decent organic growth without expanding the number of locations recently. Virgin Active currently operates a total of 194 clubs, in the UK, South Africa, Italy, Spain and Portugal. The Esporta takeover will double the number of health and racquets clubs that it operates in the UK.