NYSC owner seeks a sale, but all’s not gym-dandy

The owner of New York Sports Clubs has to get in shape fast or risk becoming the biggest loser in the gym space.

Town Sports International, which bills itself as the biggest gym chain in the New York area, with 107 clubs, revealed last week it was looking for a buyer.

But the middle-market player is getting squeezed between low-cost options like Planet Fitness and more expensive, specialty chains like Equinox, Soul Cycle and Life Time Fitness.

“Town Sports has great real estate, but it is the wrong model and brand,” said one industry source.

Finding a suitor for the money-losing Town Sports is an even bigger challenge at its current stock price, sources added.

The New York company is trading at a 6.8 times earnings before interest, taxes and depreciation, or Ebitda, including its net debt.

“I would be shocked if there was a buyer at this multiple,” said one source.

Shares of Town Sports fell 1.7 percent Friday, to $6.35.

Life Time shares spiked 15 percent Friday on reports it is for sale at more than 9 times Ebitda.

Planet Fitness is planning to go public this year at what is likely to be a double-digit multiple, sources said.

A group of private-equity investors last year paid around 8 times Ebitda for 24 Hour Fitness, which is in better financial shape than Town Sports.

The gym industry has quickly become bifurcated. Equinox charges north of $150 a month; Planet Fitness just $15.

Town Sports is closer to the midpoint, around $60. But the chain, which named Daniel Gallagher CEO last month, is going after both ends of the market after losing $69 million in 2014.

The company plans to convert most of its clubs to a lower-priced model by the end of May. It is also opening a much smaller number of BFX Studio clubs at a higher price point.

This strategy is not without serious risks. Town Sports has long-term leases on nearly all its gyms, with many in expensive Manhattan locations. It has to significantly boost membership at the lower rates to become profitable.

“I think, unfortunately, it’s too little too late,” said an industry source.

The chain has some time to improve its bottom line — about two years at its current cash burn.

Town Sports sold its East 86th Street property for $86 million last fall. After the sale, it has access to $100 million in cash and credit lines.

Overall, the gym industry is healthy. Revenue from US fitness clubs rose to $22.4 billion in 2013, from $19.5 billion in 2009, according to the International Health, Racquet and Sportsclub Association.

Town Sports CEO Gallagher declined to comment.