Autobiography - The Galindo Group

Ram Galindo THE MAKING OF AN AMERICAN Page 142
With the additional investments we made and with the new management skills we
brought, we were able to turn the business around. Thus, we decided to exercise the
option to buy the club outright, which required full payment of the note to the owner. We
also decided to exercise the option we had acquired for the adjacent tract of land, which
was a heavily wooded 14.192-acre parcel in the floodplain behind the club. On July 7,
1998, I did a sophisticated multi-property like-asset exchange making the club and the
floodplain lot part of the trade. In this manner Cid and I paid the seller off and traded the
property to a related family partnership for a significant gain. Simultaneously with this
transaction we separated the health fitness business from the real estate and thus
created two separate assets. Since our capital was mostly sweat-equity, when we sold
both properties our profit was very attractive. Our exit strategy proved fortunate for us
and for the seller.
By early 1999, Cid was consumed by his new company in Austin and I was again very
focused in the real estate business. Neither of us had enough time to dedicate solid
periods of attention to the fitness business. Thus, we began considering the idea of
getting out of the business of health club management. While it was always possible to
sell to a third party operator, we preferred to create an opportunity for our employees,
who by this time also began expressing some interest in purchasing their own means of
production.
Cid and I had another incentive to sell to the management team – we wanted to help a
new family member. While working at Aerofit as a sales agent, my daughter Lis met
Ricky Soto in 1993. He was a student at A&M to whom she had sold a membership.
Their friendship resulted in a job for Ricky at Aerofit Villa Maria, as we began calling this
facility after we opened Aerofit clubs in other locations. By 1996, Ricky was already my
son-in-law and was very involved in the business. He eventually became the head
accountant for the whole system of Aerofit clubs. In mid-1999 Kathy Langlotz, Larry
Isham, Ricky Soto and two other outstanding managers with shorter tenures,
approached us about buying the clubs. One of the new participants was Darren Busby,
manager of the Aerofit Royal Oaks facility and the other was Julie Odell, who worked at
Villa Maria.
Cid and I helped them set up their new corporate structure and became two of several
investors they recruited. We provided subordinated capital in the form of debenture
holders, not as stockholders. In addition, with a generous dose of significant owner
financing that we also provided, we allowed them to get a convenient bank loan. Thus,
we sold the assets of both clubs to them in a transaction that finally closed December
21,1999. With this conveyance I repeated an already familiar exit strategy of selling to
my own management in a deal that was good for both parties.
This was a few months after Cid and I exercised our option to buy the Royal Oaks club
and its adjacent land. Immediately, we also began hatching a new project that would
allow us to fund the option for the floodplain land. The Aerofit Royal Oaks purchase was
Autobiography.doc 142 of 239