Although insiders had already guessed Direct Focus would make an aggressive play for bankrupt StairMaster, it still took nearly four hours to squeeze out the last of four other competitors for the brand known for its steppers. In the end, Direct Focus acquired most of StairMaster's assests (all except the indoor cycling bikes) for $25 million.
The Western District of Washington U.S. Bankruptcy Court auction -- held Jan. 17 behind closed doors at StairMaster Sports/Medical Inc.'s attorney's offices in Seattle, Wash. -- overflowed seven conference rooms with company presidents, investment advisors, attorneys and others representing the five bidding companies and StairMaster, with more than 25 telephone lines also buzzing, including one to London, SNEWS learned.
"It wasn't a surprise that they were all there," said StairMaster attorney Fred Corbit. "The StairMaster name is a good name in the industry, and it has good products."
Considered nearly a done deal, the acquisition still must be approved by Judge Thomas T. Glover of the bankruptcy court. That approval is now scheduled for Jan. 25 at a court hearing. Court approval in such cases can be based on concerns for the division of sale proceeds, such as how much would go to unsecured creditors.
"We are very pleased with our auction bid," Brian Cook, CEO of Direct Focus said in an official statement, adding that once approved it "would strengthen our position as a leader in the worldwide fitness market. StairMaster would bring us a strong product line of commercial cardiovascular equipment, complementary retail products and enhanced manufacturing capabilities. We also gain more great brand names in the fitness area, StairMaster and Quinton, that add to our powerful combination of Bowflex, Nautilus, and Schwinn brands."
Kirkland, Wash.-based StairMaster, known as the creator of the stepper, also owned Quinton, a manufacturer of high-end commercial treadmills.
Other bidders, according to Corbit, included one investment company (The Reiss Companies, per a SNEWS exclusive story earlier this month, click here to read it), one international sporting goods company, Direct Focus, and two other fitness-equipment companies. Life Fitness has confirmed to SNEWS it was a part of the bidding, but a spokeswoman said it bowed out "when the bidding went to a level that we couldn't support." The other bidding fitness company was said by insiders to be Icon Health & Fitness. No comment was available from Icon.
"They were all serious," Corbit said, "and they bid substantial amounts."
Corbit said the bidding started at $15 million, and all five companies made it to $17.5 million, before they started stepping out. Direct Focus was left at the end to duke it out with one other company, winning StairMaster by placing its last bid $200,000 higher than the other company. Then officials for both companies worked late into the evening to iron out the intricacies of the agreement, Corbit said, who declined to comment about whether the price was higher than expected.
Direct Focus wasted no time in announcing its acquisition, sending a brief press release early the next morning, followed by another mass email from a representative of the company seeking candidates for marketing and PR positions for Schwinn/Nautilus and StairMaster. According to a StairMaster representative, no layoffs were imminent at that company. "Direct Focus seems to let its acquired companies run as they did previously," the representative said.
Based on a preliminary analysis by Direct Focus (NASDAQ: DFXI), StairMaster operations are expected to contribute over $40 million to annual sales in 2002 to the Vancouver, Wash.-based company. "At the end of 2001, we had cash and short-term investments in excess of $50 million," Cook said. "We believe this acquisition is an excellent use of our financial and management resources, and offers significant growth opportunities."
SNEWS View: Although attempts were made to keep this auction from becoming the three-ring circus that was Schwinn's auction over the summer, word still seeped about who was there. Five may have shown, but a couple of those were there only to see if they could snag the name "StairMaster" -- these days nearly generic for any stepper -- for a whistle and a prayer. But Direct Focus had more in mind. It was clear from the start that Direct Focus had its eye on the StairMaster name, wasn't going to say "uncle" so easily -- and had the money to reel it in safely. And it is an acquisition that makes perfect sense too, not only as a way to enter the home stretch in the company's quest to own "names," but also as a relatively inexpensive way to fill in the gaps in its product line. Direct Focus can't be perceived as the evil empire here -- as some are wont to do -- because it is quickly spawning what outsiders have said the young, restless, and slightly floundering fitness industry needs to survive -- consolidation. We wouldn’t be surprised if Direct Focus used the public's recognition of the StairMaster name to develop other direct-to-consumer products, like it has now with Bowflex. And now that Direct Focus has treadmills, steppers and ellipticals, it won't likely consider other companies, such as Precor.