Forstmann Little is a private equity firm that owns the fitness club chain, 24 Hour Fitness, having originally acquired the health club chain seven years ago for $1.6 billion. Though there are no locations in Massachusetts, 24 Hour Fitness is currently the largest privately held chain of fitness centers, consisting of approximately 425 locations throughout the world.
Forstmann Little's leading limited partner and financier died last November. The firm has been in the process of winding down its operations. In connection with its dissolution, Forstmann Little is contractually required to perform an asset liquidation and a return of the proceeds to its investors.
The firm is now offering to sell its chain to potential buyers, possibly including other fitness chains and private equity firms. It is expected that the fitness chain will sell for $2 billion. One potential buyer may be LA Fitness, which currently operates clubs in Massachusetts and is also currently partially owned by a private equity firm.
Membership fees from health clubs make them attractive acquisition targets for private equity firms. This is because of the predictable cash flow from membership fees that can be earmarked towards paying off acquisition debt.
Aside from 24 Hour Fitness, Forstmann Little also owns IMG, a fashion, media and sports company. A sale of IMG should also be expected sometime next year.
Purchase and sale agreements involving the sale of business assets can be complex, especially ones involving multiple venues and billions of dollars. From the point of view of the limited partners of Forstmann Little and the dissolution of the fund, it will be important to ensure that in both of these major asset sales, they will avoid liability and receive a fair value for these two businesses.
Source: New York Times, "24 Hour Fitness Is Said to Be on the Block," Peter Lattman, July 31, 2012