Larger Health Clubs Seeking Acquisition Possibilities

When the recession hit in late 2008, Life Time Fitness, like so many club companies in the industry, curtailed its plans for expansion. Whereas Life Time had planned to open 10 to 12 clubs per year, the Chanhassen, MN-based company slowed that growth to about three new opens per year.

Now in the third quarter of 2011, Life Time is primed to accelerate its growth with more capital and less debt. In the second quarter, Life Time retired $70 million of mortgage debt and increased its credit facility from $470 million to $660 million, extending its term to June 2016. The company now has bank commitments totaling nearly $900 million.

“This speaks volumes about the strength of our balance sheet and cash flow,” Life Time CEO Bahram Akradi said in a second quarter financial call with analysts.

The company plans to grow its number of clubs through both new builds and conversions, although Akradi wouldn’t offer specifics, only saying, “We’re all over it.”

Life Time is just one company eyeing expansion. Other companies that are private have made overtures, according to various industry sources, over the past few months. The major players either have the cash or are more able to get the credit to grow their companies. The result could mean industry consolidation, likely driven by only those major players.

Several companies, like Life Time, have adjusted their credit facilities. Last year, JP Morgan launched a $675 million loan to refinance debt at 24 Hour Fitness, San Ramon, CA. The refinancing, according to an Internet report, will eliminate significant debt maturities this year and next.

Also last year, Equinox, New York, increased its debt facility from $400 million to $425 million. Earlier this year, Town Sports International (TSI), New York, refinanced its $350 million debt that includes a seven-year loan facility that matures in 2018.

(After this story went to press, TSI, during a second quarter earnings call with analysts, reported its best results since fourth quarter 2008. Also after this story went to press, Equinox announced it had acquired The Sports Club Co.)

All of this is good news for the industry, says Mark Mastrov, co-founder and chairman of New Evolution Ventures, Lafayette, CA, which operates Crunch, New York.

“The banks have opened up and started to refinance some of these bigger companies out there,” Mastrov says, “which means there’s a trickle-down effect for the regional players and the mom-and-pops to go out and get refinancing.”

It also means companies armed with new financing are better equipped to grow, and, perhaps, to wheel and deal.