Proposal for Acquisition of
The Sports Club/LA
Nicole Braun, Roxy Perleberg, Matt
Theiss, Nicki Van Enkevort
Overview 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
• 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 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”
LTF Strategic Objectives
• 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, highvolume business with value
pricing
LTF 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 Fitness
Income Statements
Revenues
Expenses
Other Exp.
EBIT
Taxes
Net Income
2007
2006
2005
$655.8
(518.4)
(24.2)
113.2
(45.2)
$ 68.0
$511.9
(411.4)
(16.4)
84.1
(33.5)
$ 50.6
$390.1
(309.2)
(13.0)
67.9
(26.7)
$ 41.2
**Numbers in millions
Life Time Fitness
Balance Sheets
Assets
Liabilities
Equity
**Numbers in millions
2007
$1,386.5
2006
$987.7
$ 814.0
572.5
$1,386.5
$595.2
392.5
$987.7
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
• 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 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 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
• 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 Statements
Revenues
Expenses
Other Exp.
EBIT
Taxes
Net Loss
2007
2006
2005
$61.7
(62.0)
(5.8)
(6.1)
0
$ (6.1)
$58.8
(59.9)
(5.3)
(6.4)
1.8
$ (4.6)
$56.2
(75.1)
(3.3)
(22.2)
0
$(22.2)
**Numbers in millions
The Sports Club/LA
Balance Sheets
Assets
Liabilities
Contingencies
Equity
**Numbers in millions
2007
$ 82.8
2006
$ 89.5
$102.1
10.5
(29.8)
$ 82.8
$104.1
9.6
(24.2)
$ 89.5
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
• 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 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
• 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 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 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
Market Share Based on Sales
2%
0%
3%
24 hour fitness
8%
Bally Total Fit
15%
Equinox Holding
2%
34%
Gold's Gym
LA Fitness*
21%
Lifttime Fitness
The Sports Club
14%
Town Sports
Wellbridge
World Gym*
0%
1%
YMCA
Marketing Opportunities
• LTF Onyx membership $120
• Diamond membership $150
• Onyx Plus membership $250
Financial 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
• 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 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
Goodwill
• 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
Revenues
Expenses
Other Exp.
EBIT
Taxes
Net Loss
2009
$1,088.6
(846.3)
(44.7)
197.6
(78.4)
$ 119.2
**Numbers in millions
2010
$1,349.9
(1,049.4)
(55.4)
245.1
(97.4)
$ 147.7
2011
2012
$1,673.9 $2,075.6
(1301.2) (1,613.5)
(68.8)
(85.3)
303.9
376.8
(120.9) (150.1)
$ 183.0 $ 226.7
2013
$2,573.8
(2000.8)
(105.7)
467.3
(186.3)
$ 281.0
Consolidated Balance Sheets
Assets
Liabilities
Equity
2009
$2,080.8
2010
$2,344.3
2011
$2,685.4
2012
$3,125.9
2013
$3,695.9
$1246.7
834.1
$2080.8
$1,362.5
981.8
$2,344.3
$1,520.6
1,164.8
$2,685.4
$1,734.4
1,391.5
$3,125.9
$2,023.3
1,672.6
$3,695.9
**Numbers in millions
Debt-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 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
Integration Timeline
0
Letter of Intent
Due Dilligence
Negotiations with Millenium Partners
GM Meeting
Close the deal
Consolidate Finance & Accounting
Consolidate Marketing
Send Letters to Current Members
Press Release
Staff Reorganization
Transition and Training
Integration of Information Systems
Change our branding
Last Day for Departing Employees
Grand Opening
Press Release
1st Reduction LTF External Staff
LTF HR Representation On-site
50
100
150
200
250
Dec 1st
Dec. 1st - Jan. 15th
100% Ownership stof all facilities
th
Estimated
time30from
Jan. 1 – Jan.
th
Jan.
15th – Jan. 30w/MP
Contingent
on
discussions
letter
Jan. of
15thintent to full
Assessment
of key
employees
integration:
Feb.
2nd –
Feb. 13th
Negotiations with
nd MP
Feb.
4 2months
Employee announcement
Expected payback
Feb. 2nd&–Training
Feb. 27thTimeline
Pay scales, layoffs,
period: 4-5 years
Bonuses for staying th
on staff $1,000 to
Feb. th
27
stay on till Feb. 27 ; estimated cost
$625,000
Feb. 28th
6 Months
March
Acquisition 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???