Nautilus Inc., Vancouver, Washington, purchased Octane Fitness LLC from North Castle Partners on Dec. 31 for $115 million, according to media releases from both companies.
Nautilus purchased 100 percent of the capital stock of OF Holdings Inc., Octane’s parent corporation, from private equity firm North Castle Partners and other stockholders. The purchase price of approximately $115 million, subject to working capital and other adjustments, was funded with a combination of cash on hand and proceeds of a new $80 million term loan.
Nautilus trades on the New York Stock Exchange under the symbol NLS. In 2009, Nautilus divested itself of the commercial side of its business, focusing instead on the consumer side of the business through direct and retail sales of products from brands such as Bowflex, TreadClimber and Schwinn. In 2010, Med-Fit Systems purchased the commercial company assets of the company from Nautilus and kept that brand name for the commercial products. In 2014, Core Health and Fitness, Vancouver, Washington, purchased the commercial Nautilus from Med-Fit Systems.
The purchase brings Nautilus back into the commercial equipment business. Nautilus will continue to sell Octane products under the Octane brand. Commercial sales make up 38 percent of Octane's business, according to the company.
In addition, Nautilus indicated in a call with analysts on Monday that it might look to Octane Fitness to help it upgrade some of its retail products.
"We have products in our portfolio that could be significantly upgraded to penetrate the pure commercial market," said Nautilus CEO Bruce M. Cazenave. "And now we have a partner from a development standpoint who could take those products and develop those for us."
Octane, Brooklyn Park, Minnesota, manufactures a line of zero impact training fitness equipment focused on specialty and commercial channels. Dennis Lee and Tim Porth founded Octane in 2001, expanding the brand’s offerings from a single elliptical machine to a portfolio of other products including the Zero Runner and XT-One cross trainer. During 2015, Octane is expected to generate sales of approximately $65 million, according to the release.
Lee and Porth will join the management team at Nautilus. Lee's new title is vice president general manager, commercial and specialty while Porth's new title is vice president, product development, commercial and specialty, according to an Octane spokesperson.
Prior to founding Octane Fitness, Lee and Porth worked for Life Fitness. The co-founder of Life Fitness, Augie Nieto, is now chairman of Octane Fitness. He also is an operating advisor to North Castle Partners and was the one who brought Octane Fitness to North Castle's attention in 2004 as a possible investment, Chip Baird, CEO and founder of North Castle Partners, told Club Industry in a September 2015 interview. Baird said North Castle typically holds onto its investments for about five years.
Nautilus had been searching for a strategic acquisition for more than 18 months, Cazenave said in the media release. He called the acquisition of Octane Fitness a "significant milestone" for Nautilus that will "meaningfully accelerate our strategic growth initiatives, including extending into higher price point products, penetrating new channels of distribution, and expanding access in international markets."
Cazenave said he was pleased Nautilus had found "a strong synergistic and cultural fit with a profitable company like Octane."
Bill McMahon, Nautilus COO, noted in the media release that the purchase "adds a leading fitness brand, unique products and technologies, broadens distribution and deepens our talent pool."
McMahon added that Octane is complementary to Nautilus from a product and channel perspective, and the acquisition will create numerous revenue synergies.
Lee stated in the release: "This combination of two industry leaders provides our team members with a unique opportunity to continue to focus on our core products and channels, while benefiting from Nautilus’ added expertise and broader resources. Our customers can look forward to our continued commitment to product innovation combined with sales and service excellence that has been our trademark. Our leadership team and associates look forward to taking Octane Fitness to the next level in this new chapter."
The acquisition of Octane is expected to be accretive to earnings beginning in the first quarter of 2016. In the fourth quarter of 2015, Nautilus expects $0.11 to $0.12 per share of one-time charges related to transaction costs, as well as other expenses related to previously disclosed patent licensing and royalty matters. Nautilus Inc. expects to release preliminary, unaudited fourth quarter and full year 2015 results on Jan. 19, 2016.