Crunch Fitness brings its brand of unique programming to the Bally family.
The agreement calls for Bally to issue approximately 3 million shares of its common stock together with cash and other considerations.
CHICAGO — The country's biggest club chain has just gotten bigger. Nearly 20 clubs bigger.
In a cash/stock transaction valued at approximately $90 million, Bally has acquired Crunch Fitness, a respected brand of 19 clubs based in New York City. Crunch will operate as a separate Bally brand.
Doug Levine, Crunch's founder and chairman, will stay on board as a consultant to Crunch and Bally, concentrating on marketing and business development. He sees the deal as a win-win for both companies.
“We have what they didn't have, and they have what we didn't have,” Levine said. “There's not a lot of duplication between the two companies.”
Levine pointed out that Bally gives Crunch an outstanding back office, great IT support and access to a large amount of capital — everything necessary to grow the Crunch name. And, as part of the larger Bally family, Crunch employees will have more room for advancement, especially as the company continues to expand.
What does Bally get out of bargain? Crunch brings five things to the table, according to Bally COO Paul Toback: a great brand, talented management, a strong membership base, a profitable business and excellent locations. (Regarding the latter, Toback pointed out that many of Crunch's facilities are in Manhattan, where real estate is hard to find.)
And that's not all Crunch delivers. “Crunch has a business model that has shown that it's second to none in selling ancillary goods and services within the four walls of the gym,” Levine said. “Crunch has shown that, second to none, it is able to expand its brand outside the four walls of the gym through radio stations, magazines, apparel, CDs, videos, books and so forth.”
Bally's plans for Crunch are almost immediate. Bally intends to shore Crunch up in its stronger markets (such as New York and Atlanta), increase its foothold in other markets (Los Angeles, for example, home to one Crunch club), and expand Crunch into areas with a large, young, urban, upscale market — Crunch's key demographic.
“Our feeling is that Crunch is a great platform, and we are looking to grow it by 20 clubs, doubling it in size, over the next five years,” Toback said.
But if Crunch locations start spreading, won't they begin to compete with Bally? No, according to Levine.
“They are very different concepts, and they will remain very different concepts,” Levine said.
Toback agrees. “The Bally market is really a mid-market consumer, and the Crunch customer is more upscale and more high-end,” he said. “So we do believe those clubs could exist in situations very close to one another.”
Still, that doesn't mean there will be a wedge keeping the two brands completely apart. There could be some overlap — depending on the circumstances. “We want to maintain the distinction because they serve different market segments,” Toback emphasized. “On the other hand, to the extent that one company is doing something a little bit better that could enhance the other without stealing from its true character and nature, then I think we could look to incorporate some of those elements into the other business.”
Since all of Crunch's management team is staying on board, there will be an opportunity for sharing these business elements and ideas. However, since both Bally and Crunch management are accustomed to different markets, could there be a conceivable clash in styles?
“I see it as a complement rather than as a clash,” Toback answered. “They have done some really great, creative, innovative marketing and programming, and we are excited about that. That kind of innovation is good for the industry, and it pushes all of us in the industry to be more creative. We are happy for them to be part of us.”
And vice versa. Levine believes this acquisition is beneficial for all involved. “I think it's going to be a wonderful thing for the industry because it is going to improve the Bally brand, which is a mass-marketing brand, and I think I have some great ideas to forge that brand forward, and it's going to grow Crunch more rapidly without the need for us to grow the back office,” he said.