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(Bloomberg) — Private equity firms Leonard Green & Partners and TPG Capital agreed to buy gym operator Life Time Fitness Inc. in a transaction valued at more than $4 billion, one of the biggest buyouts of the year. The investor group, which also includes LNK Partners and Life Time’s chief executive officer, Bahram Akradi, will pay $72.10 a share in cash for the Chanhassen, Minnesota-based company, according to a statement Monday. The price reflects a 73 percent premium to the closing price on Aug. 22, before Life Time said it was considering its strategic options. The deal caps almost seven months spent contemplating various scenarios. Life Time, which operates 114 fitness centers in the U.S. and Canada, said in August it would explore a conversion into a real estate investment trust after posting second-quarter profit that trailed analysts’ estimates and cutting its sales forecast. The company also adopted a shareholder rights plan prohibiting anyone from owning more than 9.8 percent of its stock, after Marcato Capital Management amassed a more than 7 percent stake. Life Time, which sold shares to the public in 2004, rose 5.2 percent to a record $70.68 at the close of trading in New York. The stock has climbed 25 percent this year.

Activist’s Push

Marcato, run by Mick McGuire, urged Life Time to consider options for its real estate, including potentially using its properties as collateral to speed up existing expansion plans, a person with knowledge of the situation said in May. Marcato, formed in 2010 with startup capital from Blackstone Group LP after McGuire worked at Bill Ackman’s Pershing Square Capital Management, is Life Time’s biggest outside shareholder. It has an 8 percent stake, according to data compiled by Bloomberg. The companies expect Monday’s transaction to be completed in the third quarter. The deal would be the year’s biggest leveraged buyout that takes a company private.
Life Time and other fitness-center operators are facing increasing competition from lower-cost gyms and studio-based exercise programs, such as CrossFit and SoulCycle. Life Time reported $114 million in net income for 2014, down from $121 million the previous year. The company said it expects to earn $120 million to $128 million this year. “There are no words to describe my gratitude for the confidence and significant commitment Leonard Green & Partners, TPG and LNK Partners have made,” Akradi said in the statement Monday.

Buyout Partners

TPG is one of the biggest U.S. buyout firms, overseeing $67 billion in assets. The Forth Worth, Texas-based firm has previously partnered with Los Angeles-based Leonard Green to buy clothing retailer J. Crew Group Inc., semiconductor-parts maker MEMC Electronic Materials, Petco Animal Supplies Inc. and thrift-stores chain Savers. Life Time was advised by Guggenheim Securities, Wells Fargo & Co., Skadden Arps Slate Meagher & Flom LLP and Faegre Baker Daniels LLP. Advisers to Leonard Green and TPG included Latham & Watkins LLP, Ropes & Gray LLP, Deutsche Bank AG, Goldman Sachs Group Inc., Jefferies Group LLC, BMO Capital Markets, RBC Capital Markets, Macquarie Capital and Nomura Holdings Inc. Kirkland & Ellis LLP advised LNK Partners.

–With assistance from Beth Jinks in San Francisco.

To contact the reporter on this story: Devin Banerjee in New York at dbanerjee2@bloomberg.net To contact the editors responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net; Nick Turner at nturner7@bloomberg.net Nick Turner