Falconhead Pumping Up With Purchase Of Extreme Fitness

Falconhead Pumping Up With Purchase Of Extreme Fitness
By Paul Ziobro for LBO Wire

6/20/2006 – Falconhead Capital LLC has joined the list of firms investing in fitness clubs, buying a majority stake in Toronto-based Extreme Fitness Holding Corp., which plans to grow from four gyms to about 20 in the next several years.

Falconhead is investing about $25 million of equity out of its second fund, Falconhead Capital Partners II LP, which has a $275 million target and has not yet closed, said David S. Moross, Falconhead's chairman and chief executive. Golub Capital is providing $27.5 million in debt to fund the deal. Extreme Fitness management is also investing.

Founded in 1995, Extreme Fitness plans over the next three to four years to open new clubs and possibly make some acquisitions in the greater Toronto area, which has a population of about 7 million, Moross said. The company currently has seven letters of agreements signed to open new locations.

Like other private equity firms investing in the sector, Falconhead was attracted to the solid Ebitda, or earnings before interest, taxes, depreciation and amortization, margins in the industry, which average 15% to 20%, according to Rick Caro, president of Management Vision Inc., a New York-based fitness industry consulting firm. 

While Extreme Fitness' financials were not disclosed, Moross said the company's profit margins are better than the industry average. That's in part because of its heavy focus on personal training services, which Moross said is the most profitable aspect of the industry. Extreme Fitness also has 45,000 members and charges monthly fees of $49.95. Each gym has about 40,000 square feet of space and is open 24 hours a day.

This marks a return to the industry for Moross, who was an individual investor in Crunch Fitness before it was sold to Bally Total Fitness. Crunch is now owned by Angelo Gordon & Co. 

Other private equity firms that have invested in the sector include Bruckmann Rosser Sherrill & Co., which owns Town Sports International Holdings Inc., the operator of New York Sports Clubs and other fitness chains; and J.W. Childs Associates and North Castle Partners, which in February sold Equinox Holdings Inc. to the Related Cos. for $505 million.

Falconhead will be bringing over several members of the original Crunch management team to Extreme Fitness. Jim Solomon, who had been president and chief executive of Crunch, will become chief executive of Extreme Fitness. David Bell, who had been chief financial officer with Crunch, will become CFO of Extreme Fitness. The two left Crunch when it was sold to Bally's. Other members of Extreme Fitness' senior management team, including current co-owner Steve daCosta, will remain in place. 

This is the second investment out of Falconhead's second fund. The firm bought Escort Inc., a maker of radar detectors, last November. Its previous fund, Sports Capital Partners LP, closed in 2001 with $215 million. 

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