Can Private Equity Fix Peloton?

Can Private Equity Fix Peloton?

Plus: Permira acquires Squarespace for $6.6 billion and KKR inks three new buyouts in Asia.

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 


Chart of the Week: Value Add’s latest PE case study profiles BJ’s Wholesale, which was owned by Leonard Green & Partners and CVC Capital between 2011-2019. During those years, the retailer more than doubled EBITDA by expanding its line of high margin private brand offerings, more careful expansion of new stores, and hiring several experienced executives with experience in eCommerce and operations. (Read More)

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What’s the deal? Multiple PE firms are reportedly interested in acquiring Peloton, as the business looks to refinance its debt ($1.7 billion in total debt with significant amounts coming due in 2025 and 2026) and right the ship after experiencing 13 straight quarters of losses. The company has announced plans to restructure and reduce annual expenses by over $200 million by the end of fiscal year 2025. Amidst continued earnings struggles, CEO Barry McCarthy has recently announced his decision to step down after two years at the helm. Simultaneously, Peloton announced plans to cut their employee base by 15% (approximately 400 employees) as part of its cost-cutting efforts. Peloton’s market cap has seen a tremendous loss of value, from $49 billion in 2021 to $1.5 billion today. 

Is Peloton undervalued? Peloton reported varying results for Q1 2024 — Revenue declined -6% year-over-year to $744 million. Forward-looking guidance for Q2 came in between $700 million and $725 million, while analysts were expecting over $750 million. Peloton’s original business, selling premium stationary bikes and other workout equipment is in freefall. Last year, Peloton’s revenue from product sales declined -50% to $1.1 billion.

However, there is a bright spot in Peloton’s business. Revenue from subscriptions was up +15% last year to $1.7 billion, and for the first time, subscriptions accounted for the majority of company revenues. A PE buyout could help Peloton continue transitioning from being a product-centric company to a subscription-based services company. 

Peloton’s most-recent annual shareholder letter outlines the bull case:

  1. Market Share: Peloton continues to lead in the fitness category, ending Q3 2023 with 3 million paid subscribers, and a monthly churn rate of just 1.2%, indicating very strong loyalty among users. 
  2. Financials: Peloton has achieved positive free cash flow for the first time in 3+ years and announced a restructuring program that aims to decrease annual expenses by over $200 million. 
  3. Operations: Operationally, the company plans to reduce overall retail showroom footprint as well as increase its focus on international markets. 
  4. Partnerships: Peloton is partnering with Hyatt hotels to put its workout equipment in 800+ hotels, which could open doors to more B2B sales. What’s more, Peloton has opened up distribution outside direct-to-consumer to other channels such as Amazon.

Opportunities for private equity. Despite the company’s optimism, it's hard to ignore Peloton’s struggles since 2021. A recall of its Tread+ treadmill was major setback for the company, new product launches haven’t quite lived up to the hype, and management repeatedly misses guidance and analyst expectations. A take-private transaction, would allow management to fully commit to a five-year transformation plan without the pressure of delivering quarterly results as a public company. The most likely acquirer would be Apollo Global Management or another mega-fund with experience leading large-scale transformation in a consumer business.

Buyout News

Permira will acquire Squarespace for $6.6 billion. The company helps small businesses build their own websites with easy-to-use development tools. Squarespace also owns Google’s former domain registration business, which it acquired for $180 million in 2023. Squarespace’s stock has lagged its peers in the tech sector; its share price is down -13% since IPO’ing in 2021. That said, financial performance has improved recently, with revenues up +17% to $1 billion in 2023, and EBITDA up +200% to $124 million. (Source)

KKR inked several buyouts in Asia this week including $1.4 billion for Australian fund manage Perpetual, a 33% stake in Japan’s Alps Logistics Co., and a partnership with Marriott to acquire Unizo Hotel – also in Japan. (Source)

Silver Lake raised $20.5 billion for a new fund, its largest to-date. The firm is refocusing on “large” bets in the tech space after funding several smaller deals in recent years, which execs say has become “distracting.” Silver Lake helped fund the take-private deal for Dell Technologies, which ended up being one of the most successful PE-backed deals in history. (Source)

Portco News

Everstone Capital and Goldman Sachs’ PE arm are looking to exit Omega Healthcare for $1.7 billion. The company has attracted interest from Blackstone. Omega helps US healthcare companies outsource functions, such as IT and administrative, to lower-cost labor markets. (Source)

CVC Capital is orchestrating an IPO for portfolio company FineToday Holdings. CVC is targeting a valuation of $2 billion to $3 billion for the personal care business based in Japan. (Source)

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