Peloton Interactive has been one of the pandemic’s big winners. Affluent consumers, stuck at home but still eager to work out, have shelled out big for its equipment and instructional apps, making the company one of Wall Street’s breakaway darlings in 2020.
But the stationary bike-maker clearly has its eyes set on the next phase of its growth, once the tailwind of the pandemic fades. Peloton late Monday said that it was buying Precor, a fitness equipment maker with deep and longstanding relationships with commercial customers like hotels, gyms, corporate campuses, and apartment buildings, for $420 million. Precor’s customers, hurting and abandoned for now, will recover once COVID-19 restrictions ease and people start getting out and about more.
What’s more, Precor has the manufacturing muscle Peloton needs to meet demand. Peloton has lost out on business due to customers frustrated by long wait times. But Precor has 625,000 square feet of manufacturing space in North Carolina and Washington state, which should be helping Peloton manufacture its connected fitness equipment in the U.S. by the end of 2021.
“By making fitness equipment closer to U.S. consumers, Peloton will be able to deliver connected fitness products to Members sooner,” the company said in its press release on Tuesday.
Last month, Peloton warned investors that it would be grappling with supply limitations “for the foreseeable future,” with longer wait times on its original product and its top-selling product, the Bike+, for two more quarters. Its newer bike, one with a contraption that allows users to move the display screen so they can do workouts off the bike, met with enormous demand, adding to the pressure on Peloton.
The acquisition news was received warmly by investors, who sent the shares up 12% on Tuesday. For the year, Peloton shares have more than quintupled. (In early November, they took a hit on news of the Pfizer/BioNTech vaccine’s strong efficacy, but they have more than rebounded since then.)
After the deal is closed sometime in early 2021, Precor will operate as a business unit within Peloton and continue to make its own branded products, which it already sells in more than 100 countries.
Precor sales will also add about $500 million in annual revenue to Peloton (which took in more than $2 billion over the last twelve months) by some estimates. In all, the deal could enable Peloton to become a savvier, more effective manufacturer able to serve a far wider market, and help it mature from pandemic juggernaut-du-jour into a long-lasting business.
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