US Markets
Tuesday, May 7th, 2024 2:08 pm EDT
Key Points
- Multiple private equity firms are considering acquiring Peloton as the company seeks to refinance its debt and return to growth after 13 consecutive quarters of losses.123
- Peloton has held talks with at least one private equity firm about going private in recent months, though the firm’s current level of interest is unclear, and other firms have been circling Peloton as a potential acquisition target.123
- Private equity firms are focused on reducing Peloton’s operating expenses, aligning with the company’s recent restructuring plan aimed at cutting over $200 million in annual expenses by fiscal 2025, to make a buyout more attractive
Peloton, the once-celebrated connected fitness company, has found itself in the crosshairs of several private equity firms as it grapples with a prolonged slump and seeks to refinance its debt. After a meteoric rise during the pandemic, Peloton has endured 13 consecutive quarters of losses, prompting these firms to consider a potential buyout.1234According to sources familiar with the matter, Peloton has engaged in talks with at least one private equity firm in recent months as it explores the possibility of going private. While the current level of interest from this firm remains unclear, multiple other private equity players have been circling Peloton as an acquisition target, though it is uncertain whether formal discussions have taken place.123The private equity firms have zeroed in on the potential to streamline Peloton’s operations and reduce its expenses, making a buyout more financially attractive. This aligns with Peloton’s recent announcement of a broad restructuring plan aimed at slashing its annual run-rate expenses by more than $200 million by the end of fiscal 2025.1234Peloton’s shares soared more than 18% in premarket trading following the report of private equity interest, underscoring the market’s anticipation of a potential deal. However, it is important to note that no agreement is guaranteed, and Peloton may ultimately remain a public company.1234The company’s spokesperson declined to comment on the speculation, reiterating Peloton’s policy of not addressing rumors or speculation.12Peloton’s allure as a takeover target stems from its dramatic fall from grace. Once boasting a staggering $49.3 billion market capitalization in January 2021, the company’s valuation has plummeted to around $1.3 billion as of Monday.1234While Peloton has a loyal subscriber base and a profitable subscription business, its hardware offerings – the very products that propelled it to household name status – have become a burden. The costly production of bikes and treadmills, coupled with numerous high-profile recalls, has alienated members and drained millions from the company’s coffers.1234Furthermore, as consumers across income levels tighten their belts, demand for expensive at-home exercise equipment has waned, exacerbating Peloton’s struggles to grow sales, generate free cash flow, and chart a path to profitability.1234Last week’s announcement of CEO Barry McCarthy’s departure and a disastrous earnings report that missed Wall Street’s expectations further underscored Peloton’s challenges. The company also revealed plans to lay off 15% of its workforce, or approximately 400 employees, in an effort to align its spending with its revenue.1234Debt has also weighed heavily on Peloton, with the company owing $692.1 million on its term loan and $991.4 million on its convertible senior notes. However, the company is working closely with lenders JPMorgan and Goldman Sachs on a refinancing strategy, expressing confidence in the support and interest from existing lenders and investors.1234While the future remains uncertain, Peloton’s struggles have undoubtedly captured the attention of private equity firms seeking to capitalize on the company’s potential for a turnaround, either through operational streamlining or a strategic acquisition.
For the full original article on CNBC, please click here: https://www.cnbc.com/2024/05/07/private-equity-firms-circle-peloton-for-potential-buyout.html
