Case Study of Life Time Fitness Inc

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2.2 Was the time right to do an IPO

I think it was the right time to do an IPO. And I listed 3 main reasons as the followings.

Predictability & Visibility:

Almost all of the centers that it had opened since 2000 had generally conformed to a model which provided members with fulfilling experience and was highly profitable, and all of these centers delivered growth in membership levels, revenue and profitability across a range of geographic markets. The company expected to open five new current model centers in 2004 and six in 2005. Table 1 indicated the growth of annual revenue and EBITDA.

And in S-1 document, we can learn more information about this aspect from “the special note regarding forward-looking statements”, which includes statements of：

Use of proceeds

Dividend policy

Capitalization

Dilution

Selected consolidated financial data

Underlying Growth Potential:

Life Time Fitness participated in the large and growing U.S. health and wellness industry, including health and fitness centers, fitness equipment, physical therapy, wellness education, nutritional products and other activities. In particular, the U.S. health and fitness club industry, achieved revenue growth at a compound annual rate of 7.8% from 1995 to 2002 to reach approximately $13.1 billion. And the primary drivers of this growth include favorable membership growth, an increased awareness of the health benefits of being physically fit, and etc. Life 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 beneficial to the growth potential.

Vulnerability Assessment:

S-1 included Life Time Fitness’s analysis of management, business, financial condition and other aspects. Especially the assessment of competitive strengths, growth strategies and risks made it clear for us to understand the advantages and disadvantages of going to public.

2.3 Risk factors

The analysis of risk factors helps us to understand the company’s internal weaknesses and external threats, which might explain it’s poor performance in long-run IPO return.

The risks are from two aspects: business and offering. If any of the following risks actually occurs, its financial condition, operating results or cash flows could be materially harmed and as a result the trading price of Life Time Fitness’s common stock could decline.

Risk related to business:

If it is unable to identify and acquire suitable sites for new sports, fitness and family recreation centers, its revenue growth rate and profits may be negatively impacted.

It may be unable to attract and retain members, which could have a negative effect on its business.

Its debt levels may limit its flexibility in obtaining additional financing and in pursuing other business opportunities.

Because of the capital-intensive nature of its business, we may have to incur additional indebtedness or issue new equity securities and, if we are not able to access additional capital, our ability to operate or expand our business may be impaired and our operating results could be adversely affected.

The health club industry is highly competitive and its competitors may have greater resources and name recognition than it has.

Competitors could copy its business model and erode its market share and brand recognition.

It is subject to extensive government regulation, and changes in these regulations could have a negative effect on its financial condition and results of operations.

If it becomes necessary to protect or defend our intellectual property rights or if we infringe on the intellectual property rights of others, we may be required to pay royalties or fees or become involved in costly litigation.

Risks related to this offering:

its principal shareholders, directors and executive officers may exercise significant control over its company.

It will face new challenges and increased costs as a public company.

The price of its common stock may be volatile

Its articles of incorporation, bylaws and Minnesota law may discourage takeovers and business combinations that its shareholders might consider in their best interests.

3. What advisers the firm hired?

Underwriters:

Credit Suisse First Boston and Merrill Lynch & Co. served as joint book running managers for the offering, with Bank of America Securities LLC, UBS Investment Bank, Piper Jaffray, and William Blair & Company serving as co-managers.

Lite Time Fitness paid $1 per share discount for underwriters.

From what we learned from the S-1 form, Life Time Fitness didn’t change its underwriters.

Auditor:

Deloitte & Touche LLP

In 2004, the total audit fees and audit-related fees were $685,002.

Who’s the most important role?

All of these roles are important to the company, but if we only consider the process of opening an IPO, then I think the most important role should be underwriters. Because, the underwriters will market the IPO shares, set the price (in consultation with the company) at which the shares will be offered to the public and, in a “firm commitment” underwriting, purchase the shares from the company and then re-sell them to investors. In order to ensure an orderly market for the IPO shares, after the shares are priced and sold, the underwriters are permitted in many circumstances to engage in certain stabilizing transactions to support the stock.

The table 2 shows the annual income (salary plus other compensation)