Angelo To Lift Crunch From Bally –

The number of fitness clubs in the U.S. has reportedly more than doubled in the past 15 years, signaling to private equity firms that the industry is one with strong organic and acquisitive growth potential. So it’s no wonder that a slew of private equity firms have taken to the sector with a fervor that can be compared to Mr. Olympia’s commitment to weight training.

Hence, when Bally Total Fitness announced a few months back that it would sell off its Crunch Fitness division, and other assets, to relieve itself of debt, it’s no surprise that a number of private equity firms showed up to compete in the bidding process. And late last month, the winner emerged. Bally announced that it struck a $45 million deal to sell the fitness chain to the private equity group of Angelo, Gordon & Co., a New York based an alternative asset investment management firm. Marc Tascher, a fitness club industry veteran, partnered with Angelo Gordon on the deal and has been slated to become Crunch’s CEO.

Upon the deal’s completion, which expected by year-end, Angelo Gordon will acquire all of Bally’s 21 Crunch sites-located in New York, Chicago, Los Angeles, Atlanta, Miami and San Francisco-as well as Bally’s two Gorilla Sports clubs in San Francisco and two of Bally’s Pinnacle Fitness clubs in San Francisco. Bally originally acquired Crunch in 2001 for about $20 million in cash and 3 million shares of common stock, while Gorilla Sports was acquired as a part of Bally’s acquisition of Pinnacle Fitness in 1998.

“Our interest in the [fitness] sector was really only sparked when we heard that Crunch up for sale,” David Roberts, a managing director at Angelo Gordon, told Buyouts. “It gave us the opportunity to enter what is a really competitive marketplace with a premier industry brand.”

For Bally, however, Crunch’s top-shelf focus proved too much for the company to handle. Bally chairman and CEO Paul Toback said that Crunch’s “high-end positioning is not consistent with our core strategy, which emphasizes strategic growth of the Bally brand and heavily focuses on the middle-market demographic.”

Toback added that when Bally acquired Crunch four years ago, it was focused on a strategy of growth through acquisition, whereas today Bally’s capital needs to be directed toward its self-branded clubs and debt reduction. As such, most of the net proceeds of the sale will be used to reduce the $175 million term loan component of Bally’s senior secured credit facility.

To add value to its new investment, all options remain on the table for Angelo Gordon. “We’d certainly be open to making acquisitions. But certainly the plan is to grow the Crunch brand in terms of memberships and geography,” Roberts said.

Indeed, Angelo Gordon is far from alone in its aspirations to purchase and enhance fitness-related assets. Other buyout shops making growth plays in the fitness sector include North Castle Partners and J. W. Childs, both of which count Equinox Fitness Clubs among their portfolio companies; MidOcean Partners, which recently acquired U.K.-based LA Fitness; Brentwood Associates, owner of fitness center operator Spectrum Clubs, Forstmann Little and Co., which, earlier this year, acquired 24 Hour Fitness Worldwide and Bruckmann, Rosser, Sherrill & Co., Farallon Capital Partners and Canterbury Mezzanine Capital, each of which are shareholders in New York Sports Clubs parent company Town Sports International Holdings Corp.

Meanwhile, Norwest Equity Partners reaped rewards for the successful 2004 IPO of Lifetime Fitness Inc., and Brockway Moran & Partners, which purchased Gold’s Gym for $60 million, was able to sell the company for about $158 million.

In other fitness-related private equity news, U.K.-based private equity firm Cinven, late last month, sold Fitness First PLC to BC Partners in a sponsor to sponsor transaction valued at about GBP835 million ($1.47 billion). Cinven, which acquired Fitness First in 2003, reaped more than double its original purchase price of GBP404 million. Fitness First is one of the world’s largest health club chains with 424 locations in 15 countries and a client base of more than 1 million members. UBS served as financial advisor to both Cinven and Fitness First.

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