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With markets opening during the past year, private equity firms are becoming more interested in the fitness industry. Industry insiders say that the industry’s recession-resilient reputation, increased mergers and acquisitions in the industry, plus an impending capital gains tax deadline have led to more activity as 2012 heads down the home stretch.
History of Investments
Private equity firms are no stranger to fitness club companies. LA Fitness, Irvine, CA, which has made three major acquisitions in the past 12 months (including its acquisition of all 36 Urban Active clubs last month), is backed by three private equity firms: Seidler Equity Partners, Marina del Ray, CA (since 1998); CIVC Partners, Chicago (since 2001); and Madison Dearborn Partners, Chicago (since 2007).
North Castle Partners owned Equinox, New York, from 2000 until 2006, when it sold Equinox to The Related Companies for $505 million. North Castle currently owns World Health Club, which has 25 clubs in Calgary and Edmonton, Alberta, Canada.
In 2004, TRT Holdings, Dallas, acquired Gold’s Gym International from Brockway Moran and Partners, a private equity firm that had purchased Gold’s in 2001. At the time of the sale to TRT Holdings, most Gold’s Gyms were franchises, but Brockway Moran had expanded the number of corporate clubs. TRT Holdings continues to build corporate-owned Gold’s Gyms, including low-price Gold’s Gym Express clubs.
Besides Gold’s Gym, Curves and possibly Planet Fitness, other franchised companies have attracted interest from private equity firms. In 2008, Summit Partners, Boston, made a minority equity investment in Snap Fitness, Chanhassen, MN. Also that year, Lake Capital, Chicago, announced a partnership with RetroFitness, Colts Neck, NJ.
“I think the franchises are an interesting story,” says Rick Caro, president of consulting company Management Vision, New York. “If the model can be proven to be successful, then obviously we’ll have more transactions.”
However, investor interest in the industry actually was higher in the 1990s when the industry had fewer players and was less fragmented, according to Kurt Roth, director at Robert W. Baird & Co., Milwaukee. Back then, the growth expectations for the industry were in the double digits, and people predicted the industry would explode.
“There were all sorts of uncharted territories,” Roth says. “The sky was the limit. Now you’ve seen it go through a business cycle and kind of a wash out, and come out on the other side.”
Interest waned during the recession, especially as a few club companies gave the industry a black eye, and the industry became more crowded with clubs, particularly with mid-price-point clubs seeing less demand, Roth says. But as the industry has matured, interest is picking up again, and investors are much more focused on the category leaders.
“We are seeing people looking at the fitness category pretty hard,” Roth says. “Everyone respects the success of Equinox and LA Fitness, so a couple of winners have been identified, but then there is a real concern about who are the other strong players. Who else is worth backing?”