Continuing their leveraged buyout partnership, private equity firms Leonard Green & Partners and TPG Capital recently announced an agreement to buy gym operator Life Time Fitness for about $4 billion. The two firms previously worked together to acquire retailer J.Crew in 2010 and Petco in 2006.
The firms agreed to pay $72.10 per share in cash, which represents a 7.3% increase over Life Time Fitness’ stock closing price last week. Life Time Fitness’ shares were trading at $70.66 per share when the buyout agreement was first announced. Other buyers in the deal include LNK Partners, a previous investor in the company, and Life Time Fitness Chief Executive Bahram Akradi, who will remain in his role and make a rollover investment of $125 million in the company’s stock. The deal is expected to close by the end of September, so long as the company’s shareholders approve it.
Life Time Fitness, which operates 114 fitness centers throughout the United States and Canada, first announced it would explore corporate financing options in August 2014. The company was reportedly under pressure from hedge fund Mercato Capital Management, who had an 8% stake in the company. Life Time Fitness had been facing increased market competition with the rise of at-home and niche workouts, with full-year net income dropping from $121.7 million in 2013 to $114.4 million in 2014. Before the buyout announcement, the company projected $120 to $128 million in net income for 2015. In addition to the fitness centers it operates, Life Time Fitness also owns the rights to half-marathons and marathons, as well as Experience Life magazine.
When Life Time Fitness began exploring corporate financing options, it initially discussed spinning off part of the company into a real estate investment trust (REIT). The REIT would have owned, acquired, and leased Life Time Fitness’ properties, and was seen as a solution that could have provided great benefits to the company’s shareholders. However, with the announcement of the leveraged buyout, it seems the company has decided to pursue an alternative plan.
During the deal, Skadden, Arps, Slate, Meagher & Flom and Faegre Baker advised Life Time Fitness, while Latham & Watkins provided advice to Leonard Green and Ropes & Gray counseled TPG. Kirkland and Ellis counseled LNK Partners.