LA FITNESS is one of the most successful chains of gyms in the country. With a mix of exercise equipment, saunas, spas and cafe facilities it has produced a winning formula in terms of ‘value fitness for all’.
As a Plc, however, it was having difficulties a couple of years ago in raising the finance necessary for its ambitious programme of expansion. Fred Turok, the chief executive, saw that the time was ripe for further growth but the company needed access to greater liquidity. The answer was to go down the private equity route to buy out the shareholders and have the funding to go forward.
At this point the responsibilities of the board were split between the non-executives who looked after the interests of the Plc and the executives who were to be part of the management buyout. While Turok developed a business plan, the non-executives identified a shortlist of ten private equity funds as potential bidders.
From Turok’s perspective, it was critical to get the right investors on board. A list of key criteria was drawn up with perhaps the most important being the need for “enough firepower” in financial terms to support his aims and the appetite to support the management’s ambitions.
The process of working through all this took from January to July last year. A number of the private equity firms approached were serious contenders. LA Fitness was widely seen as being the market leader; it had an excellent product and an experienced management team. Turok says: “I wanted the private equity house to add value to the business so that I could learn from it.” In the end he chose Mid Ocean “because it had done most to understand us as a company and our sector.”
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Although well-satisfied now, Turok does not disguise that it was not without its difficulties. Inevitably there were lots of lawyers and other advisers involved and it was a distraction from running the day-to-day business. But it was essential for the company’s long-term development. “The Plc at that time had simply outlived its usefulness,” says Turok.