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Forstmann Little Winds Down With 24 Hour Fitness Sale

Forstmann Little & Co. sold 24 Hour Fitness Worldwide Inc. on Friday to a group of investors, the last step in the more than two-year process of winding down the pioneering buyout firm.

A small group of Forstmann Little employees and a Washington, D.C., lawyer have been selling the firm’s holdings since the November 2011 death of co-founder Theodore J. Forstmann, a larger-than-life Wall Street figure who accumulated a fortune by acquiring companies such Dr Pepper Co. and Gulfstream Aerospace Co., and made headlines deriding his competitors and dating a string of A-list beauties.

Forstmann Little bought 24 Hour Fitness in 2005, paying about $1.6 billion in one of its last significant acquisitions. A sale of the business was completed Friday, for $1.85 billion, according to people familiar with the matter. The investors are putting down about $600 million and raising debt for the remainder, some of the people said.

The buyers are New York private-equity firm AEA Investors LP, the Ontario Teachers’ Pension Plan and Fitness Capital Partners, a joint venture between merger advisory firms Dean Bradley Osborne and Global Leisure Partners that put together cash from institutional investors and wealthy families specifically for the deal.

Based in San Ramon, Calif., 24 Hour Fitness operates more than 400 clubs in 18 states, with more than half of its locations in its home state. The business has annual revenue of about $1.3 billion, according to Moody’s Investors Service.

The fitness chain was shopped around in late 2012, but the firm pulled the plug on the process when offers came in below expectations. Attention was turned to unloading the firm’s other big asset: IMG Worldwide Inc., the talent and marketing agency that had been a favored investment of Mr. Forstmann.

Forstmann Little struck a deal in December to sell IMG to rival William Morris Endeavor Entertainment LLC and its private-equity backer Silver Lake for about $2.3 billion.

Rather than launch a broad auction for 24 Hour Fitness, the group winding down the firm negotiated privately with the buyers, many of whom had shared backgrounds at Morgan Stanley and were former associates and friends of Mr. Forstmann, said the people familiar with the deal.

Mr. Forstmann founded his firm in 1978 and helped pioneer the leveraged buyout, in which companies are bought with mostly borrowed money. He built a fortune in the 1980s and 1990s with a string of lucrative buyouts and was immortalized in the 1990 book “Barbarians at the Gate” about the takeover battle for RJR Nabisco, which his firm lost to rival KKR & Co. The title came from a swipe he took at competitors, in which he criticized their increasing use of extra-risky debt to fund corporate takeovers.

Forstmann Little racked up losses in the early 2000s on bad telecom bets, and Mr. Forstmann, who was spotted over the years with the likes of actress Elizabeth Hurley and television personality Padma Lakshmi, decided not to raise a follow-up to the firm’s 2000 buyout fund. Nor did he appoint a successor.