LA Fitness pumps up with acquisition

By Ricardo Lopez

Dec. 10, 2011 12 AM PT

LA Fitness, one of the largest gym chains in the country, has become an even more dominant player in the health club industry.

The Irvine company last week took over 171 Bally Total Fitness locations in 16 states, including about 40 in Southern California, marking one of the biggest deals by a gym chain in recent years.

The $153-million purchase, which gives LA Fitness more than 500 locations nationwide, is a smart move, experts said.

LA Fitness picked up tens of thousands of members in prime markets. And with the labor market improving in California and nationwide, the chain is betting that it can attract consumers who might have canceled their memberships during the recession back to the gym, analysts said.

“LA Fitness has been a steadily growing company, and this is a huge splash,” said Stuart Goldman, managing editor of Club Industry, a trade magazine that publishes a yearly list of Top 100 fitness clubs. “Once the dust settles, LA Fitness could emerge as the largest.”

Executives at privately owned LA Fitness declined to comment. Three private equity companies -- Siedler Equity Partners, CIVC Partners and Madison Dearborn Partners -- own a majority of the company.

To attract new members, Goldman said LA Fitness was likely to upgrade the former Bally gyms, many of which are dated and worn. He said the chain may be positioning itself to go public in a few years as its private equity owners look to profit from their investment.

In 2010, LA Fitness generated around $1 billion in revenue, according to estimates by Club Industry.

Once considered a titan in the industry, Chicago-based Bally has had a troubled history -- two bankruptcies, legal settlements over allegedly unethical sales tactics and a reputation for shoddy accounting. Even with several changes in leadership, the beleaguered company struggled. Bally generated about $550 million in revenue in 2010, a 48% drop from 2006, when its sales topped $1 billion, Goldman said.

At its peak, Bally operated more than 400 fitness centers in the U.S., Mexico, Canada, China and the Caribbean. Experts said shedding locations would help the company strengthen its finances and rehabilitate its flagging reputation. After the sale, Bally will emerge debt-free and will operate about 100 gyms with 800,000 members.

“This is a good move for Bally,” said John Atwood, a fitness club consultant. “Somehow, they’ve got to stop the bleeding. They need some cash. And I think they need a true face lift for how they’ve managed the company.”

As recently as August, Gold’s Gym International of Irving, Texas, was in talks with Bally about a possible deal. One of the world’s largest health club chains, Gold’s operates 600 locations in more than 40 countries.

But LA Fitness swooped in relatively quickly to cut its own agreement with Bally, paying about $900,000 per club, Goldman said.

In a brief statement, LA Fitness said that it would honor all Bally memberships acquired in the sale and that an undisclosed number of Bally employees would have to reapply for their jobs.

The sale surprised some Bally customers, including Charles Rutley, who now finds himself an LA Fitness member. As he left a former Bally gym in downtown Los Angeles this week, he said members should have gotten more notice -- and employees too. On Tuesday, gym signs still read “Bally Total Fitness.”

Rutley motioned to the juice bar, closed last week, which stood vacant and unattended at the gym’s entrance.

“I used to get a protein shake after all my workouts,” said Rutley, 50, who works as a security guard.

Others, however, seemed to welcome news of the sale.

Veronica Mata, a 33-year-old organ transplant processor, said she looked forward to much-needed upgrades and more free amenities at the downtown gym she frequents.

“Honestly, I’m just looking for cleaner bathrooms,” she said. “And the free classes that Bally normally charges for.”

ricardo.lopez2@latimes.com

(BEGIN TEXT OF INFOBOX)

Heavyweights

Here are the 10 largest fitness club companies, their headquarters and annual revenue:

1. 24 Hour Fitness

Headquarters: San Ramon, Calif.

Revenue: $1.3 billion

2. L.A. Fitness International

Headquarters: Irvine

Revenue: $1 billion

3. Life Time Fitness