NEW YORK — The bankruptcy sale of Crunch, New York, which was completed this month, has similar parallels to the 2006 sale of Crunch by Bally Total Fitness, Chicago.
Back then, the private equity firm Angelo, Gordon & Co. teamed with the founder of a large fitness company to buy Crunch from Bally for approximately $45 million. (Bally bought Crunch in 2001 for $90 million.) Angelo, Gordon's partner at the time was Marc Tascher, who helped found Town Sports International, New York.
Flash forward to 2009, and Angelo, Gordon once again is teaming with the well-known founder of another club company. This time, it's Mark Mastrov, founder of 24 Hour Fitness and now head of the New Evolution Fitness Co. (NEFC). Angelo, Gordon and NEFC formed the investor group CH Fitness to purchase Crunch for approximately $40 million.
Mastrov is now the chairman of Crunch. His NEFC partner, Jim Rowley, a former 24 Hour executive, is the new Crunch CEO and vice chairman.
“This new ownership group and capital structure will allow Crunch to grow strategically while continuing to provide our members with a fresh and innovative fitness experience,” Mastrov says.
Rowley takes over as CEO from Tim Miller, who resigned on Aug. 31 after the announcement that the sale had been approved by the U.S. Bankruptcy Court for the Southern District of New York.
It's unusual that an investor would purchase a company again in bankruptcy court. But that's what happened in the case of Angelo, Gordon, which teamed with NEFC to buy Crunch's first lien debt from Goldman Sachs Credit Partners for $46.2 million last December. That allowed Angelo, Gordon to own both the equity and debt of Crunch, which filed for bankruptcy on May 6.
As a secured lender, Angelo, Gordon had the right to credit bid its debt, says Crunch financial adviser Duane Stullich of FocalPoint Partners, Los Angeles. A credit bid allows lenders to use outstanding loans to buy indebted companies without paying cash.
“Angelo, Gordon has been incredibly supportive of Crunch,” Stullich says. “Despite some of the challenges they have had with Crunch since acquiring it in 2006, they did not walk away as many others in their position may have done upon emerging from Chapter 11.”
Crunch will continue to serve four major markets: New York, San Francisco, Miami and Los Angeles. Angelo, Gordon and NEFC will now be in charge of a combined 18 existing clubs in those markets. Crunch, which had 73,000 members when it filed for bankruptcy, now has approximately 55,000 members. Ten other clubs owned by Crunch have either been sold, are in the process of being sold or have closed.
Mastrov, who founded 24 Hour Fitness in 1984 but left that company in January 2008, said that Crunch will expand in its four core markets and was expected to open a new location in the San Francisco suburb of Danville, CA, this month. Crunch also plans to establish new locations, Mastrov said.
Crunch is in the process of selling its clubs in Chicago and Atlanta and is exiting those markets for the time being. Crunch accepted a stalking-horse bid from LA Fitness, Irvine, CA, for $200,000 for Crunch's Buckhead club in Atlanta. LA Fitness is expected to transfer the memberships at the Buckhead club to a nearby LA Fitness. Crunch closed its Parkway Pointe location in the Atlanta area in April.
Fitness Formula, Chicago, made a stalking-horse bid of $50,000 for Crunch's Grand Avenue club in Chicago. The purchase would be for memberships and other assets at that club. As of late last month, no stalking-horse bid had been made for Crunch's other Chicago club on North Avenue, which also is for sale.
Two non-Crunch branded clubs were recently sold. The Hauppauge Sports Club in Smithtown, NY, was sold to ALGLASS Ltd, owned by Stephen Stern, Gary Goldstein and Allen Marquart. The purchase price was $225,000 plus more than $50,000 for debt considerations.
The Crunch-owned Rock Creek Sports Club in Silver Spring, MD, was sold in July. LA Fitness had made a bid of $300,000 for the club, but several members of the club opposed the deal.
Instead, to bring things full circle, Rock Creek Sports Club was sold to a company owned by Paul London and a fellow by the name of Marc Tascher. Yep, that's the same Marc Tascher who bought the entire Crunch company three years ago.