Case Study of Life Time Fitness Inc

Case Study:

LIFE TIME FITNESS, Inc.

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FIN 625 (summer)

Xian Li

2015/8/2

Executive summary        

1. Introduction        

1.1 Company’s Background        

1.2 Marketing and Financial Condition        

2. Why would the company go public? Was the time right to do an IPO?        

2.1 Why would Life Time Fitness go public?        

2.2 Was the time right to do an IPO        

3. What advisers the firm hired?        

4. What was the Offering Price and number of shares offering? Was there any changes before the actual listing?        

5. How did the market react to the IPO?        

5.1 The short-run IPO return        

5.2 The long-run performance        

Executive summary

Founded in 1992 and incorporated in Minnesota, Life Time Fitness primarily operates in the Membership Sports And Recreation Clubs industry. The stock is listed as LTM on the NYSE. Life Time Fitness did not go public officially until 2004 when it offered 9,900,000 shares at $18.50 per share. With a total offer amount of $183,150,000, Life Time Fitness's IPO is much larger than the average IPO. As the company said, the net proceeds of the IPO would be used to open additional facilities and to repay debt.

Since 1992, Lite Time Fitness had consistently increased its revenue by opening new sports, fitness and family centers and other activities. The industry environment, and company’s business strategies were main drivers to the growth potential. It was the right time for the company to go to public, IPO raised capital for Life Time Fitness to expand its business and pay back debt. The company got beneficial in the short-run IPO return, but it didn’t escape from the IPO’s curse in long-run return.

In this case study, I’ll exam the necessity and benefit of doing an IPO by analyzing its financial condition, industry environment and other aspects, and I’ll analyze the rise and fall of its stock.

Introduction

1.1 Company’s Background

Bahram Akradi, the CEO, opened the first Life Time Fitness center in 1992 to provide a high quality alternative to traditional health clubs and to create a platform to deliver its healthy way of life philosophy. Since then, LTF has refined its center format and offerings, LTF operates distinctive and large sports, athletic, fitness and family recreation centers. As of June 5, 2004, the Company operated 34 centers in eight states. The Company also provides consumers with nutritional products and supplements, the award-winning healthy lifestyle magazine, Experience Life, world-class athletic events, full-service spas, cafes, personal training consultation, health and nutrition education, and corporate wellness programs. Life Time Fitness is headquartered in Eden Prairie, Minnesota 

1.2 Marketing and Financial Condition

Marketing:

Compared with other companies in the industry, Life Time Fitness has many competitive strengths such as it offers comprehensive, high quality product with broad appeal, it offers product at a compelling value that creates a loyal membership base, has a committed and experienced senior management team, and etc.

Out of its 33 centers operating as of March 15, 2004, 24 were of its large format design and 12 of these 24 centers conform to its current model of approximately 105,000 square-feet. Based upon its site selection criteria, Life Time Fitness believed that there were the potential for adding at least 225 of our current model centers throughout the U.S. in existing as well as new markets.

Finance:

Three primary sources of Its revenue are membership dues and enrollment fees paid by members, in-center revenue from fees for personal training, group fitness training and other member activities, sales of products at LifeCafe, sales of products and services offered, and other revenue, including its media, nutritional product and athletic event businesses. Life Time Fitness has consistently increased its revenue by opening new sports, fitness and family recreation centers, increasing the number of memberships per existing center and focusing on the sale of additional products and services in our centers. From 1999 through 2003, it experienced compound annual revenue growth of 47.5% with revenue of $256.9 million in 2003, compound annual EBITDA growth of 59.7% with EBITDA of $80.0 million in 2003 and compound annual net income growth of 71.2% with net income of $20.6 million in 2003.

Table 1: The growth rates of revenue and EBITDA (2002-2003), in thousands

Why would the company go public? Was the time right to do an IPO?

2.1 Why would Life Time Fitness go public?

There are many advantages for a company going public. The financial benefit in the form of raising capital is the most distinct advantage. For Life Time Fitness, this capital can be used to fund its business expansion, fund capital expenditure and used to pay off existing debt. Another advantage is IPO can increase public awareness of Life Time Fitness, because IPOs often generate publicity by making their products known to a new group of potential customers. Subsequently this may lead to an increase in market share for the company.