Proposal for Acquisition of The Sports Club/LA
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Transcript of Proposal for Acquisition of The Sports Club/LA
Proposal for Acquisition of The Sports Club/LA
Proposal for Acquisition of The Sports Club/LA
Nicole Braun, Roxy Perleberg, Matt Theiss, Nicki
Van Enkevort
Overview of LTF CompanyOverview of LTF Company• Founded in 1992 by
Braham Akradi • Ending 2007, LTF operated
71 fitness centers in 17 states, Today LTF operates 85 fitness centers in 19 states
• Services Offered: Full Gym, Work-out center, Pool/Indoor Water Park, Rock Climbing Wall, Childcare, Spa, Café, Experience Life Magazine, Free Locker-rooms, and more.
Overview of LTF Company Con’t
Overview of LTF Company Con’t
• Ending 2007 LTF employs 15,000 people• Currently, LTF holds 21% market share
compared with its competitors – Competitors include: Bally Fitness, Equinox,
Town Sports & YMCA– Focus on Mid-Upper Middle Class
• Stock regularly out performs the market– Current price $19.04– EPS 1.81 – Beta 1.76
LTF Strategic ObjectivesLTF Strategic Objectives
• Mission– “We provide an Education, Entertainment,
Friendly and Inviting, Functional and Innovative experience of uncompromising quality that meets the health and fitness needs of the entire family”
• Vision– “To be a Premier Employer by making every team
member more valuable each year while Building and Expanding a Macro Healthy Way of Life Company and Brand that is respected and coveted by Customers, Vendors and Competitors”
• Competitive Strategy– Large, high quality,
physical structures – A wide variety of
offerings which attract a large and strong demographic
– Strong member experience focused on high-quality, high-volume business with value pricing
LTF Strategic ObjectivesLTF Strategic Objectives
LTF Financial StatusLTF Financial Status
• Very strong financial status.• Annual revenue growth of 25%, 31%, and
28% over the past three years, respectively.
• In 2007, LTF had EBITDA of $197.7 million.
• Annual EBITDA growth of 25%, 24%, 33% over the past three years, respectively.
• In 2007, LTF had a profit margin of 10.4%.
Life Time FitnessIncome Statements
Life Time FitnessIncome Statements
2007 2006 2005Revenues $655.8 $511.9 $390.1Expenses (518.4) (411.4) (309.2)Other Exp. (24.2) (16.4) (13.0)EBIT 113.2 84.1 67.9Taxes (45.2) (33.5) (26.7)Net Income $ 68.0 $ 50.6 $
41.2
**Numbers in millions
Life Time FitnessBalance Sheets
Life Time FitnessBalance Sheets
2007 2006Assets $1,386.5 $987.7
Liabilities $ 814.0 $595.2
Equity 572.5 392.5 $1,386.5 $987.7
**Numbers in millions
Overview of The Sports Club/LA
Overview of The Sports Club/LA
• Founded in 1979 by Michael Talla• Awarded Best Yoga and Best Health Club in
America• 5 facilities
– Los Angeles, Orange County, Rockefeller Center, Beverly Hills, Dallas
• 2,619 employees
Overview of The Sports Club/La
Overview of The Sports Club/La
• Services include state-of-the-art cardiovascular and weight training options, full service spa, expert private training, fit lab assessment centers, valet parking, swimming, basketball, volleyball, and many more.
• Millennium Partners purchased six facilities in 2006– Reebok Sports Club, Upper East Side,
Washington, D.C., San Francisco, Boston, Miami– $ 80 million
The Sports Club/LA Strategic ObjectivesThe Sports Club/LA Strategic Objectives
• Marketing strategy– Providing high quality, lavish, and
cutting edge fitness and personal health services
• Mission– We are the finest sports and fitness club
company in the world dedicated to enhancing our members mission
The Sports Club/LA Strategic ObjectivesThe Sports Club/LA Strategic Objectives
• Culture– Their lavish, large, high quality buildings
attract many of the wealthy residents who live in large metropolitan areas.
– High quality physical structures, a variety of services, and high quality targeted to the most elite, even to the stars.
The Sports Club/LA Financial Status
The Sports Club/LA Financial Status
• Very weak financial position. • Losses for the past seven years.• Extremely high operating expenses
exceed revenues.• In 2007, EBITDA was $7 million.• Profit margin was -9.9% in 2007.
The Sports Club/LA Income StatementsThe Sports Club/LA Income Statements
2007 2006 2005
Revenues $61.7 $58.8 $56.2
Expenses (62.0) (59.9) (75.1)
Other Exp. (5.8) (5.3) (3.3)
EBIT (6.1) (6.4) (22.2)
Taxes 0 1.8 0
Net Loss $ (6.1) $ (4.6) $(22.2)
**Numbers in millions
The Sports Club/LA Balance Sheets
The Sports Club/LA Balance Sheets
2007 2006
Assets $ 82.8 $ 89.5
Liabilities $102.1 $104.1
Contingencies 10.5 9.6
Equity (29.8) (24.2) $ 82.8 $ 89.5
**Numbers in millions
The Sports Club Opportunity The Sports Club Opportunity
• LTF Current Cost of Expansion $31 Mil. * 5 = $153 Mil.
• Estimated Cost of The Sports Club/LA $66 Mil. - $92 Mil.
New York City, Los Angeles, Orange County, Beverly Hills, Dallas
• Total Estimated Savings
$61Mil. - $87 Mil.
The Sports Club Opportunity Con’t
The Sports Club Opportunity Con’t
• Buyout of a competitor – Increase market share from 21% to 23% instantly, & 30% in 5 years
• Entrance into the upper class market• Increase advertising opportunities due to
celebrity memberships • Gain space in highly populated areas • Fully-staffed & licensed facilities • Top of the line equipment • Low stock price
Management OpportunitiesManagement Opportunities
• Turning losses into gains– Sports Club 2007 losses = $6.1 Million
• Buy-out of Board of Directors & Executive Management – Estimated remuneration value = $4 - $5
Million – Preferred stock dividends = $1.2 Million – Total savings = $5.2 – $6.3 Million
• Utilizing Key Performers – On-site development & LTU
Management Opportunities Con’t
Management Opportunities Con’t
• Number of LTF employees per facility = 211 • Number of Sports Club employees per facility for the
same volume business = 400 – Reduction in force of 125 employees per facility, additional
75 anticipated to leave– Adjustment of existing pay scales– $1,000 bonus for employees willing to stay on staff for one
month following announcement– Fitness auditions & Internal Transfer opportunities – Consolidation of Marketing, Finance, & Administrative
functions– Intensive training of Sports Club staff & customer transition
25 – 40% Savings in Payroll Expenses
Marketing OpportunitiesMarketing Opportunities
• A 24% annual increase in sales over the next five years. – Celebrities– 34% availability at the 32 recently new
centers. – LTF Management strategy
Market ShareMarket Share
• Currently have 21%
• Adding 9%– 2% from Sport Club– 5% up from a 24%
increase due to regular LTF business operations
– 2% expected increase in existing Sports Club facilities due to improved management strategy because of LTF
8%
34%
14%
1%0%
21%
2%
15%
2%0% 3%
Market Share Based on Sales
24 hour fitness
Bally Total Fit
Equinox Holding
Gold's Gym
LA Fitness*
Lifttime Fitness
The Sports Club
Town Sports
Wellbridge
World Gym*
YMCA
8%
34%
14%
1%0%
21%
2%
15%
2%0% 3%
Market Share Based on Sales
24 hour fitness
Bally Total Fit
Equinox Holding
Gold's Gym
LA Fitness*
Lifttime Fitness
The Sports Club
Town Sports
Wellbridge
World Gym*
YMCA
Marketing OpportunitiesMarketing Opportunities
• LTF Onyx membership $120• Diamond membership $150• Onyx Plus membership $250
Financial OpportunitiesFinancial Opportunities
• Low common stock price of $1.05. • Ability to reduce operating expenses
by using LTF’s current model.• $87.9 million in federal operating
loss tax carryforwards.• $56.5 million in state operating loss
tax carryforwards.
Purchase Price Purchase Price
• Our Offer: $65,704,679– 2x value of preferred stock– 2 year payout of future preferred
dividends– 1.5x value of common stock
• Maximum Purchase Price: $91,832,906– 3x value of preferred stock– 2 year payout of future preferred
dividends– 2x value of common stock
Financing the PurchaseFinancing the Purchase
• Sale of Life Time Fitness common stock– 4.0-5.5 million shares
• Stock trade for current Sports Club common stockholders– Defer any undesired tax consequences
GoodwillGoodwill
• Goodwill expected to increase by $86.5 million.– $68 million due to purchase price plus
direct costs– $18.5 million due to amount that
liabilities assumed exceed assets acquired.
Consolidated Income Statements
Consolidated Income Statements
2009 2010 2011 2012 2013
Revenues $1,088.6 $1,349.9 $1,673.9 $2,075.6 $2,573.8
Expenses (846.3) (1,049.4) (1301.2) (1,613.5) (2000.8)
Other Exp. (44.7) (55.4) (68.8) (85.3) (105.7)EBIT 197.6 245.1 303.9 376.8 467.3Taxes (78.4) (97.4) (120.9) (150.1)
(186.3)Net Loss $ 119.2 $ 147.7 $ 183.0 $ 226.7 $
281.0
**Numbers in millions
Consolidated Balance Sheets
Consolidated Balance Sheets
2009 2010 2011 2012 2013
Assets $2,080.8 $2,344.3 $2,685.4 $3,125.9 $3,695.9
Liabilities $1246.7 $1,362.5 $1,520.6 $1,734.4 $2,023.3
Equity 834.1 981.8 1,164.8 1,391.5 1,672.6
$2080.8 $2,344.3 $2,685.4 $3,125.9 $3,695.9
**Numbers in millions
Debt-to-Equity RatioDebt-to-Equity Ratio
• Current Debt-to-Equity Ratio: 1.01• Immediately after acquisition: 1.32
– Large amount of debt assumed in acquisition.
• Five years after acquisition: 1.04
Return on InvestmentReturn on Investment
• Best-case scenario: 4 years• Worst-case scenario: 5 years• Discounted payback periods
calculated using expected results from operations.
• Additional synergy savings:– Construction cost savings– Opportunity cost savings
0 50 100 150 200 250
Letter of IntentDue Dilligence
Negotiations with Millenium PartnersGM Meeting
Close the dealConsolidate Finance & Accounting
Consolidate MarketingSend Letters to Current Members
Press ReleaseStaff Reorganization
Transition and TrainingIntegration of Information Systems
Change our brandingLast Day for Departing Employees
Grand OpeningPress Release
1st Reduction LTF External Staff LTF HR Representation On-site
Employee announcement
Pay scales, layoffs, & Training Timeline
Bonuses for staying on staff $1,000 to stay on till Feb. 27th; estimated cost $625,000
Assessment of key employees
Negotiations with MP
100% Ownership of all facilities
Contingent on discussions w/MP
Dec 1Dec 1stst Dec 1Dec 1stst
Jan. 15Jan. 15thth – Jan. 30 – Jan. 30thth Jan. 15Jan. 15thth – Jan. 30 – Jan. 30thth
Jan. 1st – Jan. 30th Jan. 1st – Jan. 30th
Jan. 15th Jan. 15th Feb. 2nd – Feb. 13th Feb. 2nd – Feb. 13th
Feb. 2nd Feb. 2nd
Feb. 2nd – Feb. 27th Feb. 2nd – Feb. 27th
Feb. 28th Feb. 28th
Feb. 27th Feb. 27th
March March 6 Months6 Months
Dec. 1Dec. 1stst - Jan. 15 - Jan. 15thth Dec. 1Dec. 1stst - Jan. 15 - Jan. 15thth
Integration Timeline Integration Timeline
Estimated time from letter of intent to full
integration:
4 months
Expected payback period: 4-5 years
Acquisition SummaryAcquisition Summary
• Accelerate LTF’s strategic growth strategy by adding 5 upscale facilities – Which would be profitable in less then 5
months – Gain instant increased market share– Provide new advertising opportunities – Provide new talent to enhance existing LTF
training
And do this at a cost roughly 40% to 57% less than LTF’s normal expansion costs
Questions???Questions???