Peloton's Big Buy

Peloton's Big Buy

Morning folks, 

On Monday, Peloton announced it had entered into an agreement to acquire Precor, a rival fitness equipment maker, for $420 million. Wall Street seemed particularly pleased with the deal, with a flurry of price target increases coming in from major analysts and the stock jumping 10% at the market open. 

So, what does this mean for Peloton?

Well, for one, Precor takes in about $500 million in revenue every year. If we are to assume that Peloton is going to maintain that business, then that’s a nice little addition to their top line going forward. However, this isn’t, I suspect, the primary goal of this acquisition. 

As part of the deal, Peloton will acquire two major manufacturing sites in North Carolina and Washington, with a combined 625,000 square feet of space. This is far more interesting in terms of Peloton’s growth trajectory. With a huge spike in demand during the CV19 pandemic, Peloton has struggled to keep up. This is not a bad problem to have as a manufacturer, but it does mean that money is being left on the table and it’s providing a terrible customer experience in terms of waiting times. That’s not good for a company that wants to be customer-centric. It’s also not good for a company that, perhaps more than any other except Zoom, is seeing huge tailwinds from the lockdown. This really is Peloton’s time to shine and building out that “pandemic cohort” is vital to the company considering the current valuation. 

The new manufacturing capabilities should allow Peloton to shorten lead-in times and accelerate production. The fact that they are both in the United States is a major advantage as this will give the company more flexibility in responding to demand spikes in the future.

However, that’s not all. Peloton will also take on about 100 research and development employees from Precor. Precor has been in the business for a long time and has multiple products that Peloton currently does not — like ellipticals and strength training machines. While these are product categories that Peloton was likely to get into anyway, the acquisition can massively speed things along. 

Finally, Precor has strong existing relationships with U.S. hotel chains, as well as corporate and college campuses. With current Precor President Rob Barker staying on to become general manager of Peloton Commercial, this could be vital to growing Peloton’s B2B business. While it might be a long time before any of us stay in a hotel again, imagine the potential of gyms filled with Peloton machinery. 

The obvious benefit is in discovery — having consumers try out the product in the hope that they will want to buy one for themselves. The other benefit lies in the ability for travelers to maintain their workout schedule when away from home. Peloton could establish a whole network of Peloton-equipped gyms around the world, meaning you never have to miss a workout. It’s that kind of ambition that is needed to make this a $100 billion business.

RoryRory

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