Falconhead Capital buys stake in Extreme Fitness: Terms not disclosed.
Private-equity firm to expand Toronto fitness chain
Tuesday, June 20, 2006
Section: Financial Post
Byline: Lori McLeod
Source: Financial Post
New York-based private-equity firm Falconhead Capital LLC has purchased a majority stake in Extreme Fitness Holding Corp., and is planning to expand the Toronto-area fitness club chain from four locations to up to 20 within the next five years.
Extreme currently has clubs in the Toronto suburb of North York and nearby Thornhill, Whitby and Pickering. For the time being, the chain's expansion will take place within the greater Toronto area, with a focus on establishing a presence downtown, said David Moross, Falconhead's chairman
and chief executive.
"Toronto is the fifth-largest city in North America, and is fairly underserved given its demographics and robust economy and growth," Mr. Moross said. "There are lots of Ma & Pas, but few real cohesive club operators there."
Membership in Canadian fitness clubs is on the rise. In 1999, 10% of Canadians were members, and that's now approaching 15%, said David Hardy, president of the Fitness Industry Council of Canada.
There are lots of opportunities for consolidation in Toronto's fragmented fitness market, and more than half of Extreme's planned new locations should come through acquisitions, Mr. Moross said. The rest would be built by the company.
However, finding the right facilities to buy could be challenging.
"In this industry, it can be tough to make acquisitions, due to the different size of the boxes and the different layout of the facilities," Mr. Hardy said. "If you find a great operator, you can do it, but most expansion comes from greenfield, which means building a club from the ground up."
All new clubs will have the same basic size, about 40,000 square feet, and the same layout as Extreme's existing facilities, Mr. Moross said.
Terms of the deal were not disclosed, but information on Falconhead's Web site said the firm typically looks to invest in companies with earnings before interest, taxes, depreciation and amortization of up to US$30-million.
Mr. Moross, who has analyzed a variety of companies in the sector and is a former investor in U.S. chain Crunch Fitness, said Extreme's margins are amongst the best he has ever seen in the industry. As a private company, Extreme does not disclose its financial information.
Bally Total Fitness, which bought Crunch Fitness in 2001, sold it early this year as dissident investors pressured Bally to consider options, including a sale, to raise its share price.
Two former Crunch Fitness executives, Jim Solomon and David Bell, will take on the roles of chief executive and chief financial officer at Extreme.
Extreme founder Steve daCosta will also maintain a stake in the company.
Falconhead, which specializes in leisure, lifestyle and sports-related businesses, already has a "good feel" for the Toronto area, Mr. Moross said. One of the companies it owns makes parts for radar detectors in the GTA, and in 2004, Falconhead bought a majority interest in Toronto-based salon and spa chain Premier Salons.