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Proposal for Acquisition of The Sports Club/LA. Nicole Braun, Roxy Perleberg, Matt Theiss, Nicki Van Enkevort . 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

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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 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
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 objectives
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 objectives1
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 Objectives
ltf financial status
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
Life Time FitnessIncome Statements

200720062005

Revenues $655.8 $511.9 $390.1

Expenses (518.4) (411.4) (309.2)

Other Exp. (24.2) (16.4) (13.0)

EBIT 113.2 84.1 67.9

Taxes (45.2) (33.5) (26.7)

Net Income $ 68.0 $ 50.6 $ 41.2

**Numbers in millions

life time fitness balance sheets
Life Time FitnessBalance Sheets

20072006

Assets $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 la1
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
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 objectives1
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
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
The Sports Club/LA Income Statements

200720062005

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

20072006

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 opportunities
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
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
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
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
marketing opportunities1
Marketing Opportunities
  • LTF Onyx membership $120
  • Diamond membership $150
  • Onyx Plus membership $250
financial opportunities
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
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
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
  • 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

20092010201120122013

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 197.6 245.1 303.9 376.8 467.3

Taxes (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

20092010201120122013

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 ratio
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
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

Dec 1st

Integration Timeline

Dec. 1st - Jan. 15th

100% Ownership of all facilities

Contingent on discussions w/MP

Estimated time from letter of intent to full integration:

4 months

Expected payback period: 4-5 years

Jan. 1st – Jan. 30th

Jan. 15th – Jan. 30th

Jan. 15th

Assessment of key employees

Negotiations with MP

Feb. 2nd – Feb. 13th

Feb. 2nd

Employee announcement

Pay scales, layoffs, & Training Timeline

Bonuses for staying on staff $1,000 to stay on till Feb. 27th; estimated cost $625,000

Feb. 2nd – Feb. 27th

Feb. 27th

Feb. 28th

6 Months

March

acquisition summary
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