With the reality of the COVID-19 pandemic, there is a steady rise in demand for home gym equipment. It makes a lot of sense for Peloton, an interactive fitness bike maker to purchase a provider of gym machines to fitness centers and hotels, Precor. With a price tag of $420 million, Precor is Peloton's biggest acquisition to date.
The rise in demand for home fitness equipment is leading to delays in delivery and an increase in customer complaints. In a statement, Peloton said Precor's manufacturing presence of over 625,000 square feet of manufacturing capacity in Washington and North Carolina will boost its effort to meet the demand. With this acquisition, Peloton can address delays in delivery, and control the entire process of production.
Prior to the acquisition of Precor, Peloton's manufacturing network included Tonic plants in Taiwan and third-party manufactures in the United States.
James Hardiman, Wedbush analyst said in a report, "It is quite obvious that a surge in demand for fitness products would have Peloton scrambling to meet the rising demand."
COVID-driven disruptions had a significant effect in slowing down freight from Asia. The move to expand domestic manufacturing is not only a smart decision but one that is necessary.
According to its website, Precor delivered the world's first elliptical in 1995. In the same statement, Precor also promises, through its president Rob Barker, to give Peloton the industry's "largest commercial network."
Precor can offer Peloton experience in serving commercial customers. The deal is expected to finalize in early 2021. Once the deal is done, Peloton's interactive products will be made available to Precor's commercial customers.
According to John Blackledge, an analyst for Cowen, this acquisition underscores the untapped enterprise opportunity. Precor may help Peloton expand its brand internally. Based in Greater Seattle, Precor sells to over a hundred countries. This fitness equipment manufacture has offices in Europe, the Middle East, the Americas, and Asia. Apart from a global footprint, Peloton can benefit by adding nearly 100 R&D employees to its research and development team.
With the pandemic keeping people in their homes, Peloton has benefited from the demand for home workout equipment. In the Fiscal first-quarter that ended September 30, the Peloton reported $757.9 million in sales (over a triple of the previous quarter). Apart from selling fitness bikes, Peloton also makes money from customer subscriptions to its services in on-demand fitness classes. This revenue stream doubled to $1.3 million.
Peloton has also expanded its product offerings to fitness apparel and shoes. This move is pitting the company against athleisure brands like Lululemon and Nike