Brunswick Corp., the parent company of Life Fitness, Lake Forest, Illinois, has acquired Cybex International Inc., Medway, Massachusetts, for $195 million, Brunswick announced Wednesday.
Cybex will join Brunswick's Life Fitness Division's portfolio of brands.
The purchase price is subject to a working capital adjustment.
Founded in 1970, Cybex offers a full line of cardiovascular and strength products largely serving the commercial fitness market. Its cardio portfolio includes treadmills and exercise bikes, plus the Cybex Arc Trainer, a cross-trainer. Cybex's strength category includes selectorized, plate-loaded, functional and free weight equipment. Cybex's 2015 sales were estimated at about $169 million.
Cybex was owned by UM Holdings. John Aglialoro and Joan Carter, who are married, are chairman/CEO and president, respectively of UM Holdings. Both also serve on Cybex's board - Aglialoro as chairman and Carter as vice chairman and secretary. Other board members for Cybex include Art Hicks Jr., president and CEO of Cybex; Art Curtis, president of Curtis Club Advisors LLC; and John McCarthy, former executive director of IHRSA.
The announcement by Brunswick did not share details about whether Cybex management would remain with the company. Brunswick plans a call Thursday morning to share more information about the acquisition. Club Industry will post more details at that time.
"With the addition of Cybex, we will expand our stable of brands serving the complete spectrum of the commercial fitness market, including health clubs, hospitality, education and military, as well as consumers, with a wide array of equipment and features that include a complete suite of services and support," explained Brunswick President and Chief Operating Officer Mark Schwabero. "We believe the combination of these premium brands and industry leaders will be well positioned to serve the global fitness market."
Brunswick, which is a public company that trades on the New York Stock Exchange, was active with acquisitions, reorganization and expansion in 2015 in moves the company had hinted at in a January 2015 financial call with investment analysts. Brunswick CEO Dustan McCoy noted in that call that the company planned to grow its fitness segment by expanding into new product categories and growing distribution in customer segments and regions that it serves throughout the world.
"As we recently shared with the investment community, we have a three-year plan aimed at growing both Brunswick’s marine and fitness businesses," McCoy said in Wednesday's announcement. "The plan is focused on expanding our fitness segment and our marine parts and accessories businesses, areas we believe offer particularly good opportunities for future growth. Cybex provides a strategic and important step forward on this path to growth."
In March, Brunswick moved its billiard business under Life Fitness, effectively eliminating its bowling and billiards segment after the bowling business was sold in September 2013. Life Fitness now develops, manufactures and sells Brunswick Billiards game room and billiard tables, furnishings and accessories. Third quarter financials from Brunswick reflected that transition.
In April's first quarter 2015 conference call with investors, McCoy told analysts that Life Fitness was targeting 2015 revenue growth in the low- to mid-single digit range for 2015 as a result of a stronger U.S. dollar. Life Fitness reported sales of $769.3 million in 2014. Financials for 2015 have not yet been released.
"We'll continue to make significant investments in Life Fitness, aggressively leveraging innovation to achieve competitive differentiation and its products and services, which should continue to enable market share growth and create business opportunities beyond its core business model," McCoy said at the time.
In that same first quarter conference call, Schwabero said Life Fitness would continue to develop new products and services that drive market share growth in commercial cardio and strength categories. He cited the Explore Console for the Elevation Series, the PowerMill Fighter, Climber, FlexStrider, E-Series Cross-Trainers and other multi-purpose training systems as products that led to share gains in the quarter.
Brunswick purchased SCIFIT Systems Inc, Tulsa, Oklahoma, two months later in June and added it to the Life Fitness division. The addition of SCIFIT provided Life Fitness with an expanded product line-up and increased access to the growing active aging market, as well as the medical wellness and rehabilitation fitness segments, Brunswick said. Details of the transaction were not disclosed, but Brunswick did disclose SCIFIT's 2014 revenues were approximately $17 million.
"Investment in fitness equipment will increase as these facilities respond to the next generation of residents and their preference towards active lifestyles," Schwabero said at the time of the SCIFIT purchase. "We believe that a blend of SCIFIT and Life Fitness, with their complementary product portfolios and combined industry knowledge and leadership, will be well-positioned to meet the needs of the active aging population."
In September, Life Fitness broke ground on a 48,500-square-foot expansion of its factory in Ramsey, Minnesota. The $4 million construction project will bring the factory's total size to 330,000 square feet. The addition, scheduled for completion in March, is expected to increase production efficiency by restructuring floor layout.
The expansion was a result of factory production nearly doubling during the previous six years, according to Life Fitness. Approximately 300 full-time employees and 100 part-time employees work at the factory.
"Our factory in Ramsey is vital to our global production," Life Fitness President Chris Clawson said. "We produce more products in Ramsey than anywhere else in the world, and we're excited to continue growing with the community and providing more job opportunities as we expand."
The Ramsey factory produces more than 140 Life Fitness and Hammer Strength commercial strength fitness equipment products. It also produces welded components for Life Fitness cardiovascular equipment that are shipped to the Franklin Park, Illinois, factory for full assembly.
Life Fitness is planning an additional 50,000-square-foot expansion for manufacturing purposes at the Ramsey plant, but Life Fitness Plant Manager Adam Schrank told Club Industry in September that a timeline for completion of the additional expansion was not set. However, a tax increment financing agreement approved by the city of Ramsey noted that the additional expansion is expected to be completed by 2018.
Life Fitness also has factories in Falmouth, Kentucky; Tulsa, Oklahoma; Bristol and Delavan, Wisconsin; and Kiskoros, Hungary.
Cybex will be joining a public company with this purchase, but it is familiar with being public. Cybex traded on NASDAQ from 2006 to 2012. The company stated at the time of its 2006 initial public offering that its move would provide capital to fund Cybex's growth initiatives, including the development of new products aimed at specific market segments and the expansion of the company's manufacturing capacity, Aglialoro, who was CEO of Cybex at that time, said when announcing the news. The company also planned to pay down its indebtedness.
However, Cybex faced struggles remaining listed on the NASDAQ. In April 2011, the company received notice from NASDAQ that it was not in compliance with NASDAQ rules that required listed companies to have a minimum stockholders' equity of $10 million, a minimum bid price for its common stock of $1 per share and a minimum market value of publicly held shares of $5 million.
Cybex blamed its failure to comply with that rule on an accounting charge relating to a 2010 ruling in the Barnhard v. Cybex International Inc. product liability case, in which Cybex was held 75 percent liable for a $66 million judgment related to an injury involving a piece of its equipment. In the case, a woman, Natalie Barnhard was rendered a quadriplegic after she leaned on a Cybex 4106 ZR Classic leg extension machine and it fell on her. The company appealed the verdict and eventually settled the case in 2012 for $19 million.
The company went private in 2012, being purchased by UM Holdings, which is owned by Aglialoro and Carter.
Some market analysts noted all along that Cybex was small for a public company. Its 2011 sales were $140.1 million. By comparison, the Life Fitness division of Brunswick that same year had revenue of $635.2 million.
"There was little benefit to being public," Hicks told Club Industry at the time the company went private. "[It's] different than 30 or so years ago when Cybex became public. There are more ways to access capital now. There are much higher levels of regulation and costs of being public. From the cost/benefit standpoint, it doesn't really make sense. And from the shareholder standpoint, there is less liquidity in the stock, so it's difficult to attract mutual funds or institutional investors or research groups. It makes sense all around."
Even after the company went private, it remained embroiled in some litigation as some stockholders filed a class action lawsuit in 2012.
The lawsuit alleged, among other things, that Cybex breached its fiduciary obligations to the company's shareholders by entering into the agreement in which all of the company's outstanding common stock held by its public shareholders would be converted into $2.55 per share cash in a "going private" merger transaction. The lawsuit also charged that the price being offered shareholders was too low and that the company had not looked at offers from other potential buyers. Cybex settled that lawsuit in 2014.
Schwabero noted in the release about the Cybex acquisition that the acquisition is consistent with Brunswick's plan to double revenue of its Life Fitness division by 2020. These recently completed acquisitions, along with the recent launch of InMovement, complement a focus on new products and services within Life Fitness' core cardio and strength equipment businesses. All of these efforts, along with potential further acquisitions, are integral to achieving the growth objectives the corporation set for its fitness business, the company said.
"There are favorable macro trends that position the fitness industry for long-term growth and Life Fitness' leading industry position provides a firm foundation from which to move forward with its strong, well-known brands, reputation for innovation and new products and solid customer relationships," Schwabero said. "The addition of Cybex will further solidify and extend these market differentiators."