Peloton Spins to ‘Born in the U.S.A.’

Home-fitness giant Peloton wants to be homemade. That could significantly expand the flywheel of a company that already has grown at lightning speed this year amid the pandemic.

Peloton said on Monday it entered into an agreement to buy major fitness-equipment manufacturer Precor Inc. for $420 million in cash. While that price makes it Peloton’s largest acquisition ever, the difference between the value of 40-year-old commercial-fitness staple and Peloton’s current market value of $47 billion shows just how valuable home fitness has grown to be in comparison and also how frothy today’s technology market has become.

Peloton has been capitalizing on the closure of gyms and other workout facilities, growing its connected-fitness subscriptions by 137% year over year in the quarter ended Sept. 30. The fact that digital subscriptions (which don’t require Peloton hardware) grew 382% over the same period suggests the only thing limiting Peloton’s growth in the pandemic might be supply constraints. According to Peloton’s website, wait times are over 10 weeks for its most expensive bike.

The purchase of Precor will add 625,000 square feet of U.S. manufacturing capacity to Peloton’s armory, which had been limited to third-party manufacturers and facilities based in Taiwan. With the new real estate, Peloton says it plans to start manufacturing its own connected fitness devices in the U.S. by the end of next year. So while the acquisition itself won’t immediately alleviate lengthy wait times, it should at least solve the problem in the longer term—if current demand persists.

Meanwhile, Peloton has bought its way into commercial settings just as vaccines begin to roll out and the end of the pandemic comes into view. In its news release, Peloton said it expects to leverage Precor’s relationships with hotels, multifamily residences and college and corporate campuses to make its own technology more prevalent. Conspicuously missing from this list are health clubs, but the company says it will continue to honor Precor’s existing orders and service agreements.