LA Fitness and Life Time Fitness have shot down a report that mentions they are potential buyers of 24 Hour Fitness, which is up for sale.
On Tuesday, The New York Times reported that Forstmann Little, the private-equity firm that owns 24 Hour Fitness, San Ramon, CA, is putting 24 Hour up for sale and has hired Goldman Sachs to run the auction process of the company. Goldman Sachs will begin soliciting interest from a group of potential buyers that include private-equity firms and other fitness chains, anonymous sources told the Times. LA Fitness, Irvine, CA, and Life Time Fitness, Chanhassen, MN, were mentioned by the Times as potential buyers of 24 Hour, which may fetch a price of $2 billion, the newspaper reported.
LA Fitness told Club Industry today that it is not in any negotiation to purchase 24 Hour Fitness. Karen Jayne Greenwood, senior public relations manager for Life Time Fitness, told Club Industry that the mention of her company in the Times article “is pure rumor and speculation.”
A message to Forstmann Little’s office in New York has not immediately been returned.
It is not a surprise that 24 Hour, which Forstmann Little acquired in 2005 for $1.6 billion, is up for sale. Forstmann Little had until June 30 of this year to sell its assets, which include 24 Hour and IMG, a sports, fashion and media company.
24 Hour President and CEO Carl Liebert told Club Industry last month that the June 30 deadline for the fund was extended and acknowledged the impending sale of the company.
“We do know that at some point in time Forstmann Little will want to sell us, but we want to make sure we have a great company for them to sell and to put on the market and for their shareholders and my shareholders to do very well,” Liebert says. “It’s a good position to be in.”
Today, in a statement to Club Industry, 24 Hour said that is working with its board of directors and Forstmann Little “to pursue strategic alternatives for the company, and we are at the very early stages of what we anticipate will be a long and thoughtful process.” 24 Hour also confirmed that Goldman Sachs, which has a long-standing relationship with Forstmann Little, is providing strategic counsel.
“For more than seven years, 24 Hour Fitness has greatly benefitted from the sound counsel and ownership of Forstmann Little & Co.,” Liebert said in a statement. “Our management team remains focused on serving our members and executing on the fundamentals that have allowed us to have a successful 2012.”
Multiple sources tell Club Industry that private-equity firms are more likely to buy 24 Hour than LA Fitness or Life Time Fitness. LA Fitness acquired 171 clubs from Bally Total Fitness last year and acquired 32 clubs from Lifestyle Family Fitness earlier this year. Life Time Fitness acquired nine Lifestyle Family Fitness clubs last year.
“While LA Fitness and Life Time are both on an acquisition spree, I am not sure that either has the funds or appetite to purchase 24, unless they can spin off and sell a percentage of the clubs to someone else,” says Stephen Tharrett, president of Club Industry Consulting, Highland Village, TX. “Life Time is not a good strategic fit since the two companies do offer a drastically different product, but LA Fitness would have greater synergy from an operating model perspective. That said, both companies are hungry for growth, especially Life Time because of public pressures. The problem is that I am not sure that either would pay as high multiples as another equity group or fund.”
Tharrett adds that LA Fitness would be in a better position than Life Time as a potential buyer, citing the strength of the private-equity firms that own LA Fitness: Seidler Equity Partners, Marina del Ray, CA; CIVC Partners, Chicago; and Madison Dearborn Partners, Chicago.
24 Hour, LA Fitness and Life Time Fitness rank 1-2-3 on Club Industry’s Top 100 Clubs list this year. 24 Hour generated an estimated $1.5 billion in 2011 revenue while LA Fitness had an estimated $1.2 billion in 2011 revenue. Life Time Fitness, a public club company, reported $1.014 billion in 2011 revenue.
24 Hour has about 420 clubs. LA Fitness says it has 518 open clubs and more than 40 under construction. Life Time operates 105 clubs.