Peloton has made a deal to acquire commercial fitness-equipment provider Precor Inc. for $420 million in cash. The acquisition will help Peloton gain U.S. manufacturing capabilities and new expansion opportunities amid the rising demand for the exercise bike spurred by the pandemic.
Peloton’s $2,000-plus stationary bikes are equipped with screens that show subscription workout classes. The company has struggled both with reducing delivery delays and long wait times for customer service support as the pandemic created a surge in demand for its bikes and treadmills.
Peloton has claimed that the delays are caused by shipping gridlock. The gridlock is significant at ports as the bikes are transported to the U.S. from manufacturers overseas.
Precor has two U.S. based manufacturing facilities that will help to ease the manufacturing and shipping delays. The two manufacturing facilities will allow Peloton will gain 625,000 square feet of manufacturing capacity in Whitsett, North Carolina, and Woodinville, Washington. These factories will join Peloton’s network of third-party manufacturers and its Tonic facilities in Taiwan.
“We have seen a ton of growth. No one would wish a global pandemic on anybody, but it’s been a tailwind for our business. Keeping up with that growth, which has been a moving target, has been a big company priority. As we’ve been investing in scaling our manufacturing, this is an area where Precor is very strong,” Peloton President William Lynch said.
Precor provides commercial-grade stationary bikes, climbers, treadmills, ellipticals, and strength-training equipment to gyms, hotels, apartments, college campuses, and other corporate locations. While Peloton has focused on sales direct to consumers, the acquisition of Precor will allow the company to expand into the commercial market with greater ease.
“Precor is driven to create personalized health and fitness experiences that help people live the lives they desire…The Precor team is excited to combine our manufacturing expertise and more than 40 years of equipment innovations with Peloton’s award-winning workout experiences to help commercial customers succeed and keep exercisers moving,” said Rob Barker, Precor’s President.
Dana Telsey, an analyst at Telsey Advisory Group, said she expects the deal could increase Peloton’s annual sales by $480 million to $500 million so long as Peloton retains Precor’s revenue.
The deal between the fitness companies is expected to close early next year. According to the companies, once finalized, Precor will operate as a business unit within Peloton and continue to make its own branded products.
News of the deal caused Peloton’s shares to soar. In early trading, stock for the company was at an intraday record of $160.56. The stock went up 11.2% from Monday’s close of $144.39. Peloton shares have seen substantial growth throughout 2020, having grown more than 400% year to date. The high-end cycle and treadmill maker has a market cap of $42.2 billion.