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 CompanyOverview 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

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 ObjectivesLTF 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”

• 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 ObjectivesLTF Strategic Objectives

LTF Financial StatusLTF 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 FitnessIncome Statements

Life Time FitnessIncome Statements

2007 2006 2005Revenues $655.8 $511.9 $390.1Expenses (518.4) (411.4) (309.2)Other Exp. (24.2) (16.4) (13.0)EBIT 113.2 84.1 67.9Taxes (45.2) (33.5) (26.7)Net Income $ 68.0 $ 50.6 $

41.2

**Numbers in millions

Life Time FitnessBalance Sheets

Life Time FitnessBalance Sheets

2007 2006Assets $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/La

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 ObjectivesThe 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 ObjectivesThe 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 StatementsThe Sports Club/LA Income Statements

2007 2006 2005

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

2007 2006

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 OpportunitiesManagement 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 OpportunitiesMarketing 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 ShareMarket 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

8%

34%

14%

1%0%

21%

2%

15%

2%0% 3%

Market Share Based on Sales

24 hour fitness

Bally Total Fit

Equinox Holding

Gold's Gym

LA Fitness*

Lifttime Fitness

The Sports Club

Town Sports

Wellbridge

World Gym*

YMCA

8%

34%

14%

1%0%

21%

2%

15%

2%0% 3%

Market Share Based on Sales

24 hour fitness

Bally Total Fit

Equinox Holding

Gold's Gym

LA Fitness*

Lifttime Fitness

The Sports Club

Town Sports

Wellbridge

World Gym*

YMCA

Marketing OpportunitiesMarketing Opportunities

• LTF Onyx membership $120• Diamond membership $150• Onyx Plus membership $250

Financial OpportunitiesFinancial 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 PurchaseFinancing 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

GoodwillGoodwill

• 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

2009 2010 2011 2012 2013

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 197.6 245.1 303.9 376.8 467.3Taxes (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

2009 2010 2011 2012 2013

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 RatioDebt-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 InvestmentReturn 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

0 50 100 150 200 250

Letter of IntentDue Dilligence

Negotiations with Millenium PartnersGM Meeting

Close the dealConsolidate Finance & Accounting

Consolidate MarketingSend Letters to Current Members

Press ReleaseStaff Reorganization

Transition and TrainingIntegration of Information Systems

Change our brandingLast Day for Departing Employees

Grand OpeningPress Release

1st Reduction LTF External Staff LTF HR Representation On-site

Employee announcement

Pay scales, layoffs, & Training Timeline

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

Assessment of key employees

Negotiations with MP

100% Ownership of all facilities

Contingent on discussions w/MP

Dec 1Dec 1stst Dec 1Dec 1stst

Jan. 15Jan. 15thth – Jan. 30 – Jan. 30thth Jan. 15Jan. 15thth – Jan. 30 – Jan. 30thth

Jan. 1st – Jan. 30th Jan. 1st – Jan. 30th

Jan. 15th Jan. 15th Feb. 2nd – Feb. 13th Feb. 2nd – Feb. 13th

Feb. 2nd Feb. 2nd

Feb. 2nd – Feb. 27th Feb. 2nd – Feb. 27th

Feb. 28th Feb. 28th

Feb. 27th Feb. 27th

March March 6 Months6 Months

Dec. 1Dec. 1stst - Jan. 15 - Jan. 15thth Dec. 1Dec. 1stst - Jan. 15 - Jan. 15thth

Integration Timeline Integration Timeline

Estimated time from letter of intent to full

integration:

4 months

Expected payback period: 4-5 years

Acquisition SummaryAcquisition 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???Questions???