Via Financial Times

New York Sports Clubs-owner Town Sports International has agreed to buy part of Flywheel Sports, the boutique spin studio operator and maker of at-home cycling equipment, according to multiple people briefed on the matter.

Town Sports is set to take over the dozens of studios Flywheel owns with plans to launch a premium offering that would give its hundreds of thousands of members access to classes at the studio chain known for its high-intensity spin cycle classes, the people said. An announcement could be made as early as next week.

The deal will not include Flywheel’s at-home cycling business, which makes a rival bike to one popularised by Peloton that retails for more than $1,699. Flywheel’s owner, the investment group Kennedy Lewis, is in talks with other buyers for that unit, although it may end up retaining the business if it cannot reach an agreement. 

Kennedy Lewis will take a roughly 15 per cent stake in Town Sports as part of the deal and the investment group may help finance future acquisitions for the fitness chain operator, the people said. 

The transaction follows a difficult period for both Flywheel and Town Sports. Investors have pumped billions of dollars into the fitness industry over the past few years, bankrolling dozens of new boutique gym concepts as well as makers of at-home fitness equipment such as Peloton and Mirror as consumers spend substantial sums on health and wellness. 

That competition has weighed on established fitness companies including Flywheel and Town Sports, as well as once darlings of the industry such as SoulCycle, which ultimately pulled its plans for an initial public offering. 

READ ALSO  Cansortium Inc. (CNTMF) CEO Robert Beasley on Q3 2020 Results - Earnings Call Transcript

Flywheel itself was forced to abandon a sales process in 2018 after would-be buyers balked at the price the company’s then-owner sought, the Financial Times first reported at the time. Slowing growth and operational problems weighed on the company’s sales prospects, and Flywheel ultimately accepted a capital injection from Kennedy Lewis that gave the investment group control of the business. 

Under Kennedy Lewis, Flywheel has closed underperforming locations in a bid to improve its finances. The group has also worked with boutique investment bank Houlihan Lokey to explore strategic options. 

Credit investment group Kennedy Lewis, which lends to companies in distress and those struggling to raise capital, was founded in 2017 by David Chene and Darren Richman. Mr Chene previously worked at CarVal Investors when the fund manager was owned by the agriculture commodities company Cargill. Mr Richman was a senior managing director within Blackstone’s credit arm GSO Capital before leaving to start Kennedy Lewis. 

While Town Sports reported rising revenues last year, its losses have climbed and its cash pile has dwindled. In November it warned its investors that it did not have enough cash on hand to repay debts coming due later this year if it is unable to refinance those obligations.

Shares in Town Sports, which operates 187 gyms and counts 630,000 members, have tumbled 88 per cent from an all-time high hit in 2018. On Friday stock in the indebted group closed at $1.78 each, valuing Town Sports’ equity at roughly $50m. 

Those shares were up almost 30 per cent in after-hours trading on Friday after Town Sports chairman and chief executive Patrick Walsh disclosed to US securities regulators that he had purchased millions of more shares in the company, lifting his stake in the group to 29.6 per cent.

READ ALSO  Coronavirus latest: Hong Kong shuts bars and clubs for 3rd time in bid to curb surge

Kennedy Lewis and Houlihan Lokey declined to comment. Town Sports and Flywheel did not respond to request for comment.

Bloomberg news agency earlier reported that Flywheel and Town Sports were nearing a deal.