TSI's Double Play

NEW YORK — When Town Sports International (TSI) announced in July that it was looking for buyers for the company, many in the industry weren't surprised considering a sale had been rumored for months. However, a few days later, the company announced that it had filed a proposal with the Securities and Exchange Commission for an initial public offering, too.

The dual-track process is unusual, but not unheard of, according to Rick Caro, president of Management Vision, a fitness business consulting company.

“Sometimes doing both leads to maximizing whatever result works out,” Caro said. Buyer interest could help the company set a higher price on its IPO or IPO interest could help the company get a higher price from bidders for the company.

Private equity firm Bruckmann, Rosser, Sherrill & Co. LLC, which owns TSI, attempted to sell the company in 2002 for $600 million. Earlier this year, McCown De Leeuw & Co. received $1.6 billion for 24 Hour Fitness, the second largest fitness club company in the United States in terms of number of corporate-owned, traditional clubs. Unsuccessful bidders for 24 Hour Fitness are rumored to now be interested in TSI, which is the third-largest club company as measured by number of clubs.

However, TSI has competitors for these buyers. Other clubs rumored to be on the block include Sport & Health, Spectrum Clubs and Wellbridge — not to mention Crunch, which Bally Total Fitness is looking to sell.

As part of most IPOs, the company in question holds a series of meetings to present its figures to mutual fund companies, hedge fund companies and other interested parties. If the companies are interested, they pledge a certain number of shares, which helps set a price for the IPO, said Caro.

If the company goes public, it would trade on Nasdaq under the symbol CLUB. The company stated that the IPO was planned to raise $172.5 million, which would go to redeem some of its senior notes as well as related premiums and interest.

The company's filing with the SEC noted that its aggregate principal amount of redeemable debt was $138.7 million as of March 31.

In the IPO filing, the company stated that its goal was to become the most recognized health club network in the four major metropolitan regions that it serves.

TSI, which has 398,000 members, owns 138 fitness clubs in the Northeast, mostly in and around New York, Boston, Philadelphia and Washington, D.C. The company operates under the Sports Club brand names: New York Sports Clubs, Boston Sports Clubs, Philadelphia Sports Club and Washington Sports Clubs. The company also has three locations in Switzerland.

The company stated that it intended to grow its revenue by expanding its number of clubs within regional clusters, growing ancillary and other non-membership revenues, and executing new business initiatives among other strategies.

The IPO filing did not state how many shares the company planned to offer or the price range of the IPO. The IPO is being underwritten by Deutsche Bank Securities and Goldman Sachs & Co.

TSI had $353 million in revenue in 2004. Operating income for 2004 was $34.3 million, net loss was $3.9 million and EBITDA was $72.7 million. For the 12 months ended March 31, 2005, the company's revenues, operating income, net loss and EBITDA were $360.7 million, $39.3 million, $1.7 million and $78.4 million, respectively.

TSI and Bruckmann, Rosser, Sherrill are in a quiet period after the SEC filing and, therefore, could not comment on this story.

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