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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. 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

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

  2. 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

  3. 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

  4. 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”

  5. 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

  6. 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%.

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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

  12. 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.

  13. 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.

  14. 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

  15. 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

  16. 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.

  17. 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

  18. 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

  19. 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

  20. 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

  21. 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

  22. Marketing Opportunities • LTF Onyx membership $120 • Diamond membership $150 • Onyx Plus membership $250

  23. 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.

  24. 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

  25. 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

  26. 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.

  27. 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

  28. 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. Questions???

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