Life Time Fitness, Inc., Chanhassen, MN, has entered into a definitive merger agreement under which affiliates of Leonard Green & Partners and TPG will acquire Life Time in a transaction valued at more than $4 billion. Other key investors include LNK Partners and Life Time Chairman, President and Chief Executive Officer Bahram Akradi, who will remain in his role and has committed to make a rollover investment of $125 million in Life Time common stock.
Life Time's board of directors unanimously approved the merger agreement and recommends that the company's shareholders vote in favor of the transaction, which would take the company private.
Under the terms of the merger agreement the investors will acquire all of the outstanding shares of Life Time Fitness common stock for $72.10 per share in cash. This price represents a significant premium to Life Time's closing share price of $41.60 on Aug. 22, 2014, the most recent trading day before the company announced that its board of directors and senior management team had initiated a process to explore a potential conversion of real estate assets into a Real Estate Investment Trust (REIT).
The merger is subject to approval from Life Time's shareholders and other customary closing conditions. The transaction is expected to close in third quarter 2015.
In late February, Life Time reported a 7 percent revenue increase to $1.291 billion in 2014 compared with 2013. The company ranked third last year on Club Industry's annual Top 100 Health Clubs list with 2013 revenue of $1.206 billion.
Life Time Fitness is not the only public company in the fitness industry looking to be purchased. Town Sports International, New York, also announced last month that it was looking at strategic alternatives that could include a sale of the company. Also as part of that announcement, former president and COO Daniel Gallagher was promoted to CEO and former CEO Robert Giardina moved to the executive chairman of the board role in order to focus more on strategic alternatives.
Life Time Fitness' stock has performed better than TSI's, going as high as $67.20 on Friday while TSI's stock price has hovered around the $5 and $6 range in the past year.
"Following a comprehensive review by Life Time's board of directors of strategic alternatives to enhance shareholder value, we are pleased to have reached this agreement, which provides our shareholders with immediate and substantial cash value representing a significant premium to our unaffected share price," Akradi said in a release from the company. "There are no words to describe my gratitude for the confidence and significant commitment Leonard Green & Partners, TPG and LNK Partners have made to Life Time and our management team."
John Danhakl, managing partner of Leonard Green & Partners, said in the release, "We look forward to working with Bahram Akradi, the Life Time management team and all of its talented and passionate employees. We are confident that we will have a long and successful partnership as we continue to serve Life Time's many loyal members and customers."
Jonathan Coslet, chief investment officer at TPG, added, "Life Time is a differentiated market leader with a long history of consistent performance and significant growth potential. We are excited to partner with Bahram Akradi and his team on the next chapter of the company's growth."
Guggenheim Securities and Wells Fargo Securities are serving as the company's financial advisors. Skadden, Arps, Slate, Meagher & Flom LLP and Faegre Baker Daniels LLP are serving as its legal advisors. Latham & Watkins LLP is serving as legal adviser to Leonard Green & Partners and Ropes & Gray LLP is serving as legal adviser to TPG. Fully committed debt financing is expected to be provided by affiliates of Deutsche Bank Securities Inc., Goldman, Sachs & Co., Jefferies, BMO Capital Markets, RBC Capital Markets, Macquarie Capital and Nomura, who also are serving as financial advisers to Leonard Green & Partners and TPG. Kirkland & Ellis LLP served as legal adviser to LNK Partners.