Life Time Fitness to be acquired for more than $4B

Devin Banerjee
Bloomberg News
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Private equity firms Leonard Green & Partners and TPG Capital agreed to buy Life Time Fitness Inc. in a transaction valued at more than $4 billion, one of the biggest buyouts of the year.

A personal trainer at Lifetime Fitness in Rochester Hills works with patrons in a fitness/wellness class in this 2006 file photo.

The investor group, which also includes LNK Partners and Life Time's chief executive officer, Bahram Akradi, will pay $72.10 a share in cash for the Chanhassen, Minnesota-based company, according to a statement Monday. The price reflects a 73 percent premium to the closing price on Aug. 22, before Life Time said it was considering its strategic options.

The deal caps almost seven months spent contemplating various scenarios. Life Time, which operates 114 fitness centers in the U.S. and Canada, said in August it would explore a conversion into a real estate investment trust after posting second-quarter profit that trailed analysts' estimates and cutting its sales forecast. The company also adopted a shareholder rights plan prohibiting anyone from owning more than 9.8 percent of its stock, after Marcato Capital Management amassed a more than 7 percent stake.

Life Time shares rose 5 percent to $70.59 as of 9:31 a.m. in New York. The stock had climbed 19 percent this year through the end of last week.

Activist's push

Marcato, run by Mick McGuire, urged Life Time to consider options for its real estate, including potentially using its properties as collateral to speed up existing expansion plans, a person with knowledge of the situation said in May. Marcato, formed in 2010 with startup capital from Blackstone Group LP after McGuire worked at Bill Ackman's Pershing Square Capital Management, is Life Time's biggest outside shareholder. It has an 8 percent stake, according to data compiled by Bloomberg.

The companies expect Monday's transaction to be completed in the third quarter. The deal would be the year's biggest leveraged buyout that takes a company private.

Life Time and other fitness-center operators are facing increasing competition from lower-cost gyms and studio-based exercise programs, such as CrossFit and SoulCycle. Life Time reported $114 million in net income for 2014, down from $121 million the previous year. The company said it expects to earn $120 million to $128 million this year.

"There are no words to describe my gratitude for the confidence and significant commitment Leonard Green & Partners, TPG and LNK Partners have made," Akradi said in the statement Monday.

Deal's advisers

Life Time was advised by Guggenheim Securities, Wells Fargo & Co., Skadden, Arps, Slate, Meagher & Flom and Faegre Baker Daniels LLP. Advisers to Leonard Green and TPG included Latham & Watkins LLP, Ropes & Gray LLP, Deutsche Bank AG, Goldman Sachs Group Inc., Jefferies Group LLC, BMO Capital Markets, RBC Capital Markets, Macquarie Capital and Nomura Holdings Inc. Kirkland & Ellis LLP advised LNK Partners.

TPG is one of the biggest U.S. buyout firms, overseeing $67 billion in assets. The Forth Worth, Texas-based firm has previously partnered with Los Angeles-based Leonard Green to buy J. Crew Group Inc., MEMC Electronic Materials, Petco Animal Supplies Inc. and Savers.

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