Unlike VF Corp., which has spun off its jeans business into a new company owned by its shareholders, Brunwick Corp. has chosen the alternative of a straight sale of its fitness division to a New York-based private equity firm, KPS Capital Partners, for about $490 million in cash, following the lead of two members of its board of directors.
The deal, which is expected to close before the end of the second quarter, values the business at about eight times adjusted Ebitda. It posted an operating profit of just $22.4 million last year on flat sales of $1,038.3 million, but this came after extraordinary charges including $22.1 million impairment on Cybex and $14.0 million on other items.
In the first quarter of this year, the segment booked an operating loss of $139.1 million after charges of $138.2 million on 8 percent lower sales of $225.2 million. The sales decline was attributed to lower sales to value-oriented fitness clubs and softening in certain foreign markets. International sales fell by 10 percent, representing 49 percent of the segment's revenues.
Brunswick originally bought Life Fitness from another private equity company in 1997 for $310 million. To help reach higher economies of scale, it subsequently added other properties in the same domain including Cybex. In addition to these two brands, the segment includes Hammer Strength, Scifit, Brunswick's Indoor Cycling Group and Brunswick Billiards. The entity will continue to be run by its president, Jason Worthy, and the rest of its management team.
Brunswick took the strategic decision to spin off or sell its fitness segment because it has been posting an average operating margin of around 10 percent before special items for many years, while growing at a low single-digit rate. This was in contrast with Brunswick's marine and boat businesses, which have been generating operating margins in the mid-teens on revenue increases in the mid- to high single digits.
In contrast, the main rival of Life Fitness, Italy's Technogym, which went public three years ago, has been reporting generally better results. In 2018, the company's adjusted Ebitda rose by 12.2 percent to €14.5 million, resulting in an Ebitda margin of more than 20 percent, and its net earnings jumped by 52.6 percent to €93 million.
Technogym's sales rose by 8 percent for the year to €643 million with increases of 26 percent in China, 16 percent in Japan and 19 percent in North America.
