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| A pedestrian walks by a 24 Hour Fitness center on July 31, 2012 in San Francisco, California. 24 Hour Fitness, the nation's largest privately held fitness center chain, is up for sale and could fetch as much as $2 billion. |
What started out in the Bay Area as a single gym in San Leandro 29 years ago and grew to be one of the world's biggest fitness chains is up for sale.
24 Hour Fitness, headquartered in San Ramon, is being put on the auction block by its owner, New York private equity firm Forstmann Little, with a price tag reportedly in the $2 billion range.
"We are working with our board of directors and Forstmann Little to pursue strategic alternatives for the company. Goldman Sachs has been engaged to provide strategic counsel as we start this process," the company said Wednesday.
It would not disclose numbers, but the $2 billion shouldn't be too hard to attain, given that the company has more than 419 outlets in the United States and Asia, including 60 in the Bay Area and Northern California, and is a veritable cash machine.
Founded by Mark Mastrov, a Castro Valley native, 24 Hour Fitness has 3.8 million members and a 22,000-strong workforce, and brings in more than $1 billion annual revenue.
Team of celebrity partners
Mastrov also recruited a number of celebrity partners, including Magic Johnson, Lance Armstrong, Andre Agassi, Madonna, Jackie Chan and a younger Arnold Schwarzenegger. For 10 seasons, contestants on "The Biggest Loser" got the services of 24 Hour Fitness personal trainers as part of a deal Matrov negotiated with NBC.
The company has sponsorship arrangements with the International Olympic Committee and Team USA's men's and women's basketball Olympians. The Bay Area's volleyball golden girl, Kerri Walsh, is one of three Team USA athletes partnering with 24 Hour Fitness to produce workout videos on YouTube.
Mastrov sold the company to Forstmann Little in 2005 for $1.68 billion, with some regret. "This is my baby," he said at the time.
In 2008, he started another business in the Bay Area, New Evolution Fitness, a private equity firm investing in health and fitness enterprises. They include a planned chain ofHard Candy Fitness centers fronted by Madonna, of which there are currently three - in Mexico City, Moscow and Santiago, Chile.
"Madonna's touch will be everywhere," Mastrov said in 2010.
He's certainly in the right business. According to IBISWorld, a market research company in Los Angeles, the U.S. fitness industry, which includes yoga studios, boxing clubs and DVD and online sporting apparel sales, is expected to total $45 billion in 2012. Despite the recession, gym memberships have grown by more than 1 million to 25.3 million since 2007.
"Over the next five years, increased youth and Baby Boomer memberships will bolster the industry's revenue," said company analyst Dale Schmidt.
Investor closing shop
So why is Forstmann Little selling? Calls and e-mails to the firm went unanswered Wednesday, but simply put, it's part of the firm's going-out-of-business sale since founderTed Forstmann died in November. The firm's one remaining major holding, the global sports and media company IMG, will be gone when Forstmann's fund formally closes up shop, probably within the next two years.
"For more than seven years, 24 Hour Fitness has greatly benefited from the sound counsel and ownership of Forstmann Little & Co.," said 24 Hour CEO Carl Liebert.
"Our management team remains focused on serving our members and executing on the fundamentals that have allowed us to have a successful 2012."
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