Fever pitch

This is five-a-side football world, where working out meets Fight Club; where the modern preoccupation with health and physique finds one of its favourite outlets. It now attracts 5.7 million regular players in the UK, one million of them women, which combined must be about one in 10 of those in the UK with the wherewithal to kick a ball.

Where once a kick-about meant chucking down a couple of jackets for goals in the local park, so-called small-sided football (also including sevens) has become a substantial business. There are now well over 100 such centres in the UK, most of them with at least 10 pitches, plus bars, changing rooms, sometimes a gym, and Sky Sports on TV screens on almost every available wall.

Those who indulge will probably be familiar with Goals Soccer Centres and Powerleague as the two main brands in the sector but, in fact, these two west of Scotland companies dominate at least four-fifths of the whole UK market.

Sharing a common founder in Goals chief executive Keith Rogers, they have pulled off the unusual feat of creating a sector that virtually didn't exist 30 years ago. They are to one another roughly what Celtic and Rangers are on the football pitch, with their respective bosses unable to resist making oblique digs at one another whenever the chance arises.

Unlike the Old Firm, however, the prospect of them merging to create an unbeatable force in five-a-side has become one of the ultimate will-they-won't-they questions in Scottish business over the years.

It last cropped up 12 months ago when Paisley-based Powerleague thought about entering a bidding war for its East Kilbride rival. That episode ended shambolically (of which more later), but there are signs Goals could soon be back in play as a notorious activist shareholder builds a stake in the business.

With new chairman Keith Edelman – formerly chief executive of Arsenal – having arrived at Goals several days ago, investors will be watching closely to see whether stability or more turbulence follows in his wake.

Rogers had not long since graduated in environmental health when he opened his first five-a-side business in Paisley in 1987. He has said previously that the idea came to him while he was "playing football in an old warehouse with a concrete floor".

He built up what came to be called Pitz over 12 years, before selling its 11 centres to private-equity group 3i for £28 million in 1999. The venture capitalists then merged it with English group Powerplay. bringing in Claude Littner, the former Tottenham Hotspur chief executive – who has more recently found fame tearing into candidates on The Apprentice – to oversee the operation.

Retirement was not on Rogers's agenda. In 2000, he took over Goals, a smaller player that had five centres at the time. With backing from Bank of Scotland and Edinburgh private-equity firm Dunedin Capital, Goals began aggressively expanding into England. By late 2004, it had 11 centres, at which time it floated on the Alternative Investment Market (Aim) to unlock more capital for its next phase of expansion.

Over at Rogers's former business, which had since been renamed Powerleague, Littner had installed Sean Tracey as his chief executive and number two. Tracey had arrived back in 1994 to manage a site in the centre of Glasgow and his subsequent rise had so impressed Littner that Tracey suddenly found himself heir apparent to what was already the biggest small-side business in the UK. By the time it reached the stock market shortly after Goals in May 2005, it had 26 centres.

Over the next couple of years, both businesses opened new centres and bought out smaller rivals. They were almost classic examples of the go-go capitalism of the pre-crash era, with ticks in all the best investment boxes.

The centres were expensive enough to build – about £2m a time – so the players in the market were relatively well protected from new entrants. Yet they were cheap to run, to the extent that extra revenue streams such as food and drink actually diluted the profit margins.

Best of all, the experts said that there was room in the UK for about 200 centres, so there was plenty of growth potential. Hence both companies were allowed to borrow heavily to build national chains, with a view to becoming one-stop-shops for sponsors keen to reach young men with money to burn across the country.

About the only complaint was that the businesses are very vulnerable to the weather, but it would take the awful winters of 2010 and 2011 before that did any serious damage. With this generally rosy outlook, their share prices went into orbit.

By the time the economic slump had taken hold in 2008, both companies had net debts approaching £50m – four or five times their top-line profits. Powerleague had 43 centres and Goals had 31. But now the old profit-to-debt ratios that the banks used to calculate how much they would lend to a business had been radically scaled back. Both companies duly retreated on expansion plans as debt renegotiations became the order of the day.

Littner decided it was time to exit in late 2009, selling out for £42.5m to London-based Patron Capital, another private-equity group. Patron, which specialises in property-related businesses and has more recently bought Edinburgh builder Cala, took the company private and left Tracey in charge.

Goals turned to the markets for help instead, raising £11m from a share issue in summer 2009 to enable expansion to resume. It has since added 13 sites – not bad in the prevailing conditions. Powerleague has added new sites too, but has offloaded some stragglers at the same time. Both have opened one centre outside the UK, Powerleague in Dublin and Goals in Los Angeles. Goals now has 43 centres and Powerleague has 45, including three and six in Scotland respectively, though Goals' 500 or so pitches appears to be a few ahead of its rival.

Each business is turning over in excess of £30m a year. Their nearest rival, Nottingham-based firm PlayFootball, while itself expanding with 12 centres in England to date, is making only about £5m from the same business.

Though Goals and Powerleague are now roughly neck and neck in terms of capacity, both claiming around 130,000 players each week, their accounts look very different. In 2011, the most recent year for which both companies have figures, Goals made a £9.2m pre-tax profit on sales of £30.4m. Powerleague made £1.1m on sales of £29.1m before exceptional costs, but for various reasons ended up losing £4.5m. This was not one of Powerleague's best years, admittedly, but the company's profits have consistently been between £2m and £5m below Goals every year going back to 2006.

Asked why Goals is more profitable, Rogers offers: "I believe we have got higher profitability because of higher footfall."

Tracey points to the offloading of "tail sites in the last three or four years" as one of the main factors.

Simon French, an analyst at Panmure Gordon, points out that Goals' profit margins are nevertheless on the slide. He says: "In 2009, Goals was generating £10.6m operating profit with a margin of over 40%. In 2008, the margin was 42%. This year we are forecasting 34%. The sector hasn't been as resilient in the consumer downturn as people anticipated. The regular footballing segment of the business is pretty stable, but some of the food and beverage and corporate event spending has proved less resilient."

Tracey adds that Powerleague focused earlier on paying down debt, which looks to be about £10m lower than its rival. However, Goals is now following suit. It has not opened any sites since spring 2012, and is not expected to add more until the second half of next year.

Powerleague has rubbed salt into these wounds by announcing a £20m expansion plan last year, backed mostly with new money from Patron. It is using the investment to focus on building smaller centres whose location in south-east England means the firm can charge more for games. The site that the company opened in trendy Shoreditch in London charges £89 for a pitch in peak periods, compared to £57 in Glasgow.

Stopping expansion has not been the only upheaval at Goals in the past two years. Last summer, the management recommended a £73m offer for the business from the Ontario Teachers' Pension Plan in a deal that was going to make millions for Rogers and his executive team and greatly increase their salaries. Ontario planned to inject £40m into the business and add 25 new sites – an answer to Goals' lack of a patron like Patron. The focus was to be international expansion, particularly North America.

Then, just weeks before this offer could be put to shareholders, Patron announced it was considering whether to table a counter-offer. You could almost hear the City rubbing its hands as the prospect of a bidding war grew. But then, in early August, Patron walked away. Tracey is not keen to talk about why this happened.

Simon French says: "Maybe the ability to get together a funding offer at a rate of interest that made it financially more attractive might have been more difficult 12 months ago than it would be now."

Several weeks later came another bombshell for Goals. In an almost unprecedented move, a minority group of 19 shareholders with 29% of the voting rights rejected the Ontario deal and prevented the 75% agreement needed to make it go through. The word was that they were unwilling to sell at a price that valued the shares at less than half their 2007 level, and wanted the focus to remain primarily on UK expansion.

Rogers had to tell the market shortly after that Goals had spent more than £1m on the negotiations. This was not the only bad news: It would also be taking a £2m hit for over-spending on the LA centre and £2m from switching to a cheaper mass-factory-produced means of building centres (though this will save money in the long run). To help cover these costs, Goals would tap the market for another £2.8m.

This storm might have sunk some chief executives. "It was quite educational," says Rogers drily. "It was a surprise. It did look as if the whole thing was done and dusted."

But he points out that the revolt meant that the rebels were optimistic about the future of the business. And he adds that shareholders who vote in favour of these deals sometimes do so with a "grudging acceptance" that they won't get any more.

"I would not suggest that people who were in favour of the deal didn't want to keep their shares."

Asked whether he ever thought about resigning, Rogers simply says: "No".

However, a few months after the event, chairman Sir Rodney Walker did resign after 10 years at the helm, becoming honorary president instead. Some sources suggest that this was the sacrifice the City demanded for the collapsed deal. Rogers says: "It was just a coincidence. With 10 years, it seemed the right thing to do."

Certainly no-one seems to be quibbling about the arrival of Walker's replacement, Keith Edelman, the man responsible for turning Arsenal into a top football club. He joins at an awkward time, with little sign of the uplift in shares that some City watchers have long been predicting and activist shareholder Chris Mills building up a stake through his Harwood Capital vehicle. From almost nowhere, Harwood has become Goals' largest shareholder this year. Rogers has insisted that Mills supports the company's strategy and so far Mills's camp have made no hint of their intentions.

Tracey has little to say on what Powerleague will do in relation to Goals in future, but it certainly does not rule out a second tilt. If this happens, it will be fascinating to see who ends up in charge.

In short, the stage is set for more intrigue in the months to come. Whether the two companies ever end up going down the aisle together, or forever stay as one of life's could-have-beens, stay tuned to see what happens next.