NEW YORK -- Crunch, New York, formally announced today that its sale to an investor group led by New Evolution Fitness Co. (NEFC) and Angelo, Gordon & Co. has been approved by the U.S. Bankruptcy Court for the Southern District of New York. The sale is expected to close by mid-September.
As part of the transaction, CEO Tim Miller has resigned, effective tomorrow, although he will stay involved as an advisor, according to a company statement.
Mark Mastrov, founder of NEFC, is now the chairman of Crunch. Jim Rowley, Mastrov’s partner at NEFC, will serve as the new Crunch CEO and vice chairman.
“Crunch will emerge debt free with a leaner, stronger portfolio of clubs in four markets,” Mastrov said in the statement. “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.”
The four markets that Crunch will continue to serve are New York, San Francisco, Miami and Los Angeles. The investor group, also known as CH Fitness, will now be in charge of a combined 18 existing clubs in those markets. Crunch is in the process of selling its clubs in Chicago and Atlanta.
Mastrov, who founded 24 Hour Fitness in 1984 but left that company in January 2008, said in the statement that Crunch will expand in its four core markets and has begun pre-sale on a new location in the San Francisco suburb of Danville, CA, that will open in late September. Crunch also plans to establish new locations, Mastrov said.
As the new Crunch CEO, Rowley will oversee the day-to-day operations of the company.
“I look forward to continuing my work with the great Crunch team and Angelo, Gordon to capitalize on the power of the Crunch brand,” said Rowley, a former 24 Hour executive.
The sale of Crunch, which filed for bankruptcy on May 6, is approximately $40 million. Angelo, Gordon & Co., a private equity firm, and Marc Tascher, founder of New York-based Town Sports International, originally bought Crunch from Bally Total Fitness, Chicago, for $45 million in 2006. Bally had purchased Crunch for $90 million in 2001.
“The health club industry has proven to be strong and resilient through this downturn, and Crunch is very well-positioned for success given its healthy, debt-free balance sheet and the involvement of NEFC,” Brent Leffel, managing director of Angelo, Gordon, said in the statement. “We at Angelo, Gordon are thrilled to be partnering with the industry-leading NEFC team in growing Crunch. We would also like to thank Tim Miller for his service to Crunch, and we wish him well in his future endeavors.”
Angelo, Gordon and NEFC bought 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.
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.”