Peloton Interactive is buying fitness-equipment company Precor for $420 million, Bloomberg reports.
Why It Matters: Peloton exploded as the Covid-19 pandemic shut down gyms and forced people to stay home. But the sudden rush of interest made it difficult for the company to keep up with demand, resulting in “long wait times and frustrated customers.” The deal, which is Peloton’s largest to date, lets the company produce products closer to home and fulfill orders quicker.
“Through the deal, Peloton will gain 625,000 square feet (58,000 square meters) of manufacturing capacity in Whitsett, North Carolina, and Woodinville, Washington. That should help the company get its products to U.S. consumers faster, starting in late 2021.”
What is Precor? It’s a unit of a Finnish sporting goods company called Amer Sports, which is in turn owned by a group of investors that includes Anta Sports, FountainVest Partners, Anamered Investments Inc. and Tencent Holdings Ltd.
- Precor makes “commercial-grade stationary bikes, ellipticals, treadmills, climbers and strength-training equipment to gyms, hotels, apartments, college campuses and other corporate locations.”
- Anta weighed the prospect of a Precor sale last year after potential buyers inquired about the fitness-equipment maker.
- Peloton plans to use the new acquisition to expand into the commercial market.
What’s Next: Peloton shares rose around 8% on the news, and the company has seen its stock rise roughly 400% this year, valuing the company at $42 billion. The deal is expected to close in early 2021.
Peloton is a company with such great product-market fit that they literally cannot make enough of their products to meet demand. What does this acquisition get them?
- Additional production capacity to meet demand for their existing products
- Expertise and synergies with a large, legacy exercise equipment maker (new products lines?)
- Access to sell into the commercial markets
I have long said that Peloton was an attractive stock because of their direct to consumer TAM, but that we haven’t even given them credit for the commercial exercise TAM. Now we can start contemplating adding that into our updated price target.