On the top of Peloton’s (NASDAQ: PTON) Christmas wish list this year was extra manufacturing space, and that’s exactly what it got. Yesterday, the company agreed to buy fellow fitness equipment maker Precor for $420 million, marking the company’s largest acquisition to date. Peloton investors gave the agreement the thumbs up as shares soared more than 8% after the announcement.
The exercise hardware and software company has been a hit on Wall Street in 2020, with users forking out $1,895 for a Peloton bike and $2,485 for a treadmill. Peloton shares have jumped almost 400% in 2020, valuing the company at over $42 billion. However, recently the stock has slid due to positive vaccine news and order delays.
By acquiring Precor, a division of Finnish sporting goods company Amer Sports, Peloton hopes to speed up production of its famous bikes and treadmills so its products arrive within the intended delivery windows. The agreement is expected to go ahead in early 2021 and once completed, Precor will operate as a business unit within Peloton.
The pandemic boom had almost been too good for Peloton. As COVID-19 restrictions forced consumers to stay inside and look for alternative exercise methods, this resulted in a massive surge in popularity for Peloton’s products. However, the sudden increase in demand caused strains on the company’s supply chain back in November. The long waiting times for delivery frustrated buyers and many complained to Peloton’s customer-service lines asking for help to cancel orders after waiting months. Other consumers even turned to competing fitness equipment brands such as Bowflex and NordicTrack.
To combat this issue and to further enhance the company’s production and delivery capabilities, Peloton is acquiring Precor so it has manufacturing space in the U.S., meaning American consumers will receive Peloton’s products much faster. The Procur deal gives Peloton factories in Whitsett, North Carolina and Woodinville, Washington, which total more than 625,000 square feet of manufacturing space. The agreement also boosts the company’s product development methods by adding almost 100 research-and-development (R&D) staff members.
Peloton President William Lynch declared: “By combining our talented and committed R&D and Supply Chain teams with the incredibly capable Precor team and their decades of experience, we believe we will be able to lead the global connected fitness market in both innovation and scale.”
In November, Peloton warned investors in the company’s quarterly earnings that it would be operating under supply constraints “for the foreseeable future.” This purchase should eventually clear up this issue and investors are pleased to see the company tackling its biggest challenge so quickly by acquiring such a reputable company to solve the matter.
Peloton’s Commercial Expansion
Currently, Peloton focuses on home-equipment but Precor’s strong relationship with commercial spaces including gyms, hotels, and offices could represent a significant growth opportunity for the company. Peloton is going to install Precor’s President Rob Barker as GM of Peloton Commercial to help it accelerate its connected equipment into commercial gyms.
The main goal of the acquisition is to speed up delivery times for buyers of existing equipment, however, long-term this deal sets Peloton up nicely for commercial expansion. Peloton now has the opportunity to take advantage of Precor’s business relationships in the commercial market to really push its products in front of a wider audience in 2021.
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