The health club operator Holmes Place has agreed to merge with rival gym chain Cannons.

Cannons is offering 200p per share for Holmes Place's 66 clubs in the UK and Europe - an 18% premium to the group's share price before the deal was confirmed.

Two months ago, Holmes Place admitted it was considering a management buy-out, interpreted as a sign of the increased pressure on luxury health clubs.

Holmes Place also reported flat profits for the first six months of the year and had a cautious outlook for the year ahead.

Premium quality?

News of a possible bid for Holmes Place emerged on Monday when the chain said it had received a number of approaches, including one from Cannons.

The group positions itself at the 'premium' end of the health and fitness sector, which offers more luxurious surroundings and services at a higher cost than the so-called 'value operators'.

But this end of the market has suffered severe competition and tough trading in the last year amid fears that a downturn in the economy is taking its toll.

Rival premium chain Esporta was taken over through a hostile offer by private equity firm Duke Street Capital in July, while Cannons was taken private last year.

A fair price?

On Wednesday, the group said due diligence - a thorough check of the company's financial statements - would take up to six weeks .

The 200p per share offer is considerably higher than the price Holmes Place was recently valued at on the stock market.

Shares had more than halved in the last year to hit a low of 120p and closed at 169p shares on Tuesday before the deal was confirmed.

Analysts, who have long been calling for consolidation in the health and fitness market, welcomed the possible deal.

Greg Feehely, leisure analyst at Old Mutual Securities, said Holmes Place's decision to accept the proposal "should focus investor's attention on the 'value' health and fitness operators, which have lower risk".

Holmes Place also reported a pre-tax profits of �6.7m for the six months to 30 June, and a 14% increase in membership numbers.