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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.
The 24 Hour Effect
The owners of 24 Hour Fitness, San Ramon, CA, are hoping that its investment is worthy of backing. 24 Hour is the biggest player in the industry currently on the market. Earlier this year, its parent company, Forstmann Little, New York, put the company on the market. Reports indicate 24 Hour could fetch about $2 billion in a sale. The sale announcement about Forstmann and 24 Hour may have ignited more activity in the industry, says Mark Mastrov, co-founder of New Evolution Ventures (NeV), Lafayette, CA, and the founder of 24 Hour.
“When 24 Hour is looking for a buyer, and they think that their value is north of $2 billion, that’s going to attract a lot of very large institutions who can afford to write that size of a check,” says Mastrov, who sold 24 Hour to Forstmann Little in 2005 for $1.6 billion. “So a lot of other companies are saying, ‘I have interest in selling, too, so maybe we should get in the market and all be out there around the same time because there’s going to be a lot of high interest right now.’”
Despite a report in The New York Times this summer that LA Fitness and Life Time Fitness, Chanhassen, MN, might be interested in buying 24 Hour, both companies later said they were not interested. Brian Smith, partner at Partnership Capital Growth, San Francisco, says the potential buyer would likely be a large private equity firm. Smith did not rule out LA Fitness, based on its private equity support, but said another possibility could be Richard Branson’s company, which owns Virgin Active Health Clubs outside the United States.
“The price tag on 24 Hour Fitness will preclude the majority of any real strategic buyers,” Smith says.
Mastrov predicts a 24 Hour sale by the end of the year or early next year.
“How long will it take for somebody to close and will they get the price they’re looking for is the question,” Mastrov says. “If they get the price they’re looking for and somebody shows up at that price, I would think that they should be able to complete a transaction in the next 90 to 120 days.”