Town Sports International Holdings Inc. (TSI), Jupiter, Florida, has entered into an agreement to acquire the cycling studio business of Flywheel Sports, New York, for a principal amount of $25 million, according to a Jan. 6 announcement.
TSI operates health clubs under the names New York Sports Clubs, Philadelphia Sports Clubs, Boston Sports Clubs and Washington Sports Clubs, among others, while Flywheel operates 29 cycling studios in more than a dozen states. The companies were founded in 1973 and 2010, respectively.
For the deal, Kennedy Lewis Investment Management (KLIM), Flywheel's current New York-based owner, has agreed to provide a second-lien loan for an aggregate principal amount of $50 million, according to TSI’s latest filing to the U.S. Securities and Exchange Commission. Of that sum, $25 million will be funded by KLIM in cash, and another $25 million will be a conversion of a seller’s note. The cash sum will be used to repay TSI’s existing debt, the filing states.
"Flywheel is an iconic name in the fitness industry, and this acquisition accelerates TSI’s strategic plan as we continue to upgrade our club network and offer more value to our members,” TSI CEO Patrick Walsh said in a media release. “The Flywheel acquisition fits perfectly into TSI’s strategy as it enables us to elevate our members’ fitness experience by offering a luxury, boutique product while elevating their fitness routines, along with the benefits of additional formats and locations. We look forward to integrating and adopting Flywheel’s five-star standards and operational excellence within TSI as we raise the operational and service standards at all TSI locations.”
TSI plans to offer its existing 600,000-plus members access to Flywheel’s offerings through packaged membership options whose details are forthcoming. Conversely, Flywheel’s 300,000-plus members will be offered similar packages for accessing TSI facilities.
"Much has been written about the changes the fitness industry is currently undergoing,” KLIM co-founder Darren Richman said in the release. “As in the case of providers like Netflix who reimagined the importance of content and the need to provide customers with more for less, we think that Patrick is following the exact same path at TSI in the fitness space. He is facilitating the delivery of more fitness modalities and content for value-conscious consumers.”
In November, TSI reported its ninth straight quarter of revenue growth ($115.49 million) while also reporting a 12.8 percent increase in its operating expenses ($124.32 million), a 197 percent increase in net losses (a loss of $11.73 million) and a 30.5 percent decrease in adjusted EBITDA ($8.37 million).
TSI rarely shares public comments about its business, but Walsh addressed the company’s fluctuating stock prices and its recent acquisitions in an April 2019 letter to shareholders in which he expressed cautious optimism about the company’s future.
Walsh was appointed CEO in 2016, and his tenure has been typified by a growth-by-acquisition strategy that has included acquisitions of Lucille Roberts, New York; Total Woman Gym + Spa, San Diego; and TMPL, New York.
In March 2018, Walsh told Club Industry he envisioned TSI evolving into a diversified holding company that could better compete across multiple industry categories.
"If [other club brands are] under the Town Sports umbrella, we can utilize our leverage, provide capital for growth, operational expertise, marketing expertise ... all these things we think are very attractive to a small business owner like David Barton or Lucille Roberts or Total Woman,” Walsh told Club Industry. “Once they're under our umbrella, they have a much better chance of growing the business in the years ahead given the environment. And that's the real value we've created with Town Sports. We're kind of agnostic in that each brand can have its own unit leader and each brand can stay true to what made them what they are. If we've done our job right, [club members] shouldn't know anything different."
TSI and Flywheel will cross-promote both businesses until the sale closes, but further details about TSI’s future integration of the Flywheel brand were not disclosed.
TSI ranked No. 7 on Club Industry’s Top 100 Health Clubs of 2019 list, reporting $443 million in 2018 revenue.
In August 2019, Flywheel announced it was closing 11 of its underperforming studios in multiple markets.
Additionally, Flywheel is facing an infringement lawsuit from competitor Peloton that claims Flywheel had used proprietary Peloton technology to stream classes and track performance on its FLY Anywhere bike. Peloton is seeking damages and a jury trial in Texas federal court.
In 2017, Flywheel began marketing at-home bikes to consumers.
KLIM purchased a majority stake in Flywheel in April 2019 and began seeking a buyer for the company as it experienced financial difficulties, according to Bloomberg.